Concept explainers
Cash versus accrual accounting
• LO2–8
Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $100,000 from a local bank and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2018, the following cash flows were recorded:
Cash collected from customers | $320,000 | |
Cash paid for: | ||
Salaries | $180,000 | |
Supplies | 25,000 | |
Rent | 12,000 | |
Insurance | 6,000 | |
Miscellaneous | 20,000 | 243,000 |
Net operating cash flow | $ 77,000 |
You are able to determine the following information about
January 1, 2018 | December 31, 2018 | |
Accounts receivable | $32,000 | $27,000 |
Prepaid insurance | –0– | 2,000 |
Supplies | 1,000 | 1,500 |
Accrued liabilities (for miscellaneous expenses) | 2,400 | 3,400 |
In addition, you learn that the bank loan was dated September 30, 2018, with principal and interest at 6% due in one year.
Required:
Prepare an accrual basis income statement for 2018. (Ignore income taxes.)
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Chapter 2 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- Exercise 7-1 (Algo) Cash and cash equivalents; restricted cash; financial statement effects [LO7-2] The controller of the Red Wing Corporation is in the process of preparing the company’s 2024 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered: Balances in the company’s accounts at the First National Bank; checking $15,500, savings $24,100. Undeposited customer checks of $7,200. Currency and coins on hand of $780. Savings account at the East Bay Bank with a balance of $600,000. This account is being used to accumulate cash for future plant expansion (in 2026). $45,000 in a checking account at the East Bay Bank. The balance in the account represents a 15% compensating balance for a $300,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2027. U.S. Treasury bills; 2-month maturity bills totaling $35,000, and…arrow_forwardProblem 1.5: Anne Corporation accounts for its sales under the cash basis. Anne Corporation cash receipts books amounted to P 1,400,000. Total collections from customers, including cash sales made and recoveries of previously written-off accounts. Based on Audit investigation, they revealed that the additional information are the following: Accounts receivable, January 1, 2021 Accounts receivable, December 31, 2021 Notes receivable, trade outstanding, January 1, 2021 Notes receivable, trade outstanding, December 31, 2021 Sales discount taken by customers Sales returns before collections were made (Evidenced by issued credit memos) Sales returns after collections were made, thus refunds were given Write-off worthless accounts receivable Cash recoveries from accounts previously write-off 100,000 140,000 80,000 90,000 40,000 25,000 5,000 30,000 10,000 Requirements: Compute for the following under the accrual basis of accounting: a. Gross sales for the year b. Net sales for the year c.…arrow_forwardQuestion 2 The Cash account in the general ledger of Hendry Corporation shows a balance of $96,990 at 31 December 2018 (prior to performing a bank reconciliation). The company's bank statement show a balance of $100,560 at the same date. An examination of the bank statement reveals the following: 1. Deposit in transit amount of $24,600. 2. Bank service charges total $200. 3. Outstanding checks total $31,700. 4. A $3,600 check marked "NSF" from Kent Company (one of the customers) was returned to Hendry Corporation by the bank. This was the only NSF check that Hendry Corporation received during 2018. 5. A cleared check (no.244) written by Hendry Corporation in the amount of $1,250 for the office equipment was incorrectly recorded in the general ledger as a debit to Office Equipment of $1520 and a credit to Cash of $1,520. On 1 December 2018, Hendry Corporation purchase a warehouse from Moran Industries for $100,000. Hendry issued a six-month, $100,000, 6% (p.a.) note payable to Moran.…arrow_forward
- MC42 The cashier misplaced all the bank statements for the past year. You reviewed the accounting records and discovered that the following journal entry was made to reconcile the June 30, 2020 bank records and accounting records: Accounts Receivables — P152,024 Miscellaneous Expense — P1,250 Notes Receivables — P20,000 Interest Revenue — P1,000 Cash — P132,274 Pre-adjustment cash balance in the accounting records was P768,370, outstanding checks were P20,750 and no other adjustments were required. What is the bank statement balance at June 30, 2020? (with solution) a. P615,346 b. P636,096 c. P656,846 d. P768,370arrow_forwardProblem 1 - Prepare a bank reconciliationThe following information relates to M Park Corporation for the month of March 2022:1. Cash balance per books, March 31 was $20,647.002. Deposits in transit, March 31 were $8,140.003. The March bank service charge was $34.00 and has not been recorded by the company.4. Outstanding checks, March 31 were $3,905.005. An electronic funds transfer (EFT) collected by the bank was $590. The collection has not been recorded by M Park Corporation.6. The bank made an error and recorded a $3,000 deposit twice.7. Cash balance per bank, March 31 was $19,968.00PurposeThe purpose of this problem is to demonstrate an understanding of preparing a bank reconciliation.InstructionsAfter analyzing the data, prepare a bank reconciliation for M Park Corporation at March 31st. Reconcile the cash balance per the bank firstand list items that increase the cash balance first. Also, round amounts to two decimal places. Please provide explainations, thanks! (arrow_forwardExercise 4-9 (Algo) Calculate the balance of cash using a bank reconciliation (LO4-5) Jackman Company's general ledger shows a cash account balance of $23,400 on July 31, 2024. Cash sales of $1,893 for the last three days of the month have not yet been deposited. The bank statement dated July 31 shows bank service fees of $37 and an NSF check from a customer of $420. The bank processes all checks written by the company by July 31 and lists them on the bank statement, except for one check totaling $1,620. The bank statement shows a balance of $22,670 on July 31. Required: 1. Prepare a bank reconciliation to calculate the correct balance of cash on July 31, 2024. 2. Record the necessary entry(ies) to adjust the balance for cash. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a bank reconciliation to calculate the correct balance of cash on July 31, 2024. (Amounts to be deducted should be indicated with a minus sign.) Per bank statement…arrow_forward
- Activity 6 In reconciling the cash balance on December 31,2019 with that shown in the bank balance, Red Company gathered the following facts: Balance per bank statement 4,000,000 Outstanding checks 600,000 Deposit in transit 475,000 Service charge 10,000 Proceeds of bank loan, December 1, discounted for 6 months at 12%, not recorded on company books 940,000 Customer’s check charged back by bank for absence of counter signature 50,000 Deposit of P100,000 incorrectly recorded by bank as 10,000 Check of Rid Company charged by bank against Red Company account 150,000 Customer’s note collected by bank in favor of Red Company. Face 400,000 Interest 40,000 Total 440,000 Collection fee 5,000 435,000 Erroneous debit memo of December 28, to charge company’s account with settlement of bank loan 200,000 Deposit of Rid Company credited to Red account 300,000 Requirement: Prepare a bank reconciliation.arrow_forwardQuestion 2 Jordan Inc is trying to prepare a cash reconciliation for the month ended January 31, 2024. At that date, Jordan's books report a balance of $81,673 in their CIBC Chequing Account, and the balance on their January bank statement is $107,876. Jordan provides you with (1) the General Ledger which shows all the changes in the cash account during the year, and (2) a copy of the January bank statement. CIBC Chequing Account Description Opening balance Payment on account (cheque #1348) Date Jan 1 Jan 5 Jan 10 Jan 10 Jan 15 Jan 15 Jan 20 Jan 25 Jan 25 Jan 27 Jan 30 Jan 31 Jan 31 BUS285 Date January 1 January 1 January 4 January 5 January 11 January 11 Jordan Inc. General Ledger Month ended January 31, 2024 Cash out Interac machine Bank deposit January 12 January 14 January 15 January 15 January 21 January 25 January 27 January 27 January 31 Interac purchase - Tim Hortons Transfer to credit card payable Cash out Interac machine Payment on account (cheque #1349) Bank deposit CIBC…arrow_forward37 The cash in bank of AA Company in BB (Bank) had a balance per book of P1,920,000 as of December 31, 2022. The details below are related to BB Bank account: A P66,800 customer’s check payable to the company, dated January 3, 2023, with O.R. no. 18932 was included in the December 31 balance. An P18,000 check payable to a supplier dated January 2, 2023 was released on December 28, 2022 and recorded on this date. A customer collection during December amounting to P345,000 was recorded by the accountant at P354,000. Outstanding checks as of December 31, 2022 amounted to P238,500 were recorded as disbursements from the cash in BB Bank account. What is the correct balance of cash in BB as of December 31, 2022?arrow_forward
- Problems on Bank Reconciliation Q6 Prepare Bank Reconciliation statement as on March 31, 2019. On this date the passbook of Al Nasr Industries LLC showed a balance of RO 27,500. -Cheques of RO 14,000 directly deposited by a customer. -Cheques for RO 13,500 were issued during the month of March but of these cheques for RO 1,500 were not presented by the end of March. -The bank collected RO 2,500 as dividend on shares. -Cheques of RO 17500 were paid into bank but of RO 8500 were realized in the month of April.arrow_forward310 Chapter 9 Statement of Financial Position Presentation: Cash and Other Related Items 9-15. Genius Company is preparing its 2016 financial statements; the accounting period ends December 31. The following items, related to cash, are under consideration. You have been asked to indicate how each item should be reported on the statement of financial position and to explain the basis for your responses. a. A P900 check received from a customer, dated February 1, 2017, is on hand. b. A customer's check was included in the December 20 deposit. It was returned by the bank stamped NSF. No entry has yet been made by Genius to reflect the return. c. A P20,000 note receivable on which P1,000 of interest accrued to December 31 has just been recorded by debiting interest receivable and crediting interest revenue. The chief accountant proposes to report the P20,000 as cash in bank. d. Genius has a P200 petty cash fund. As of December 31, the fund cashier reported expense vouchers covering various…arrow_forward18 Owen Company's unadjusted book balance at June 30 is $13,680. The company's bank statement reveals bank service charges of $110. Two credit memos are included in the bank statement: one for $1,410, which represents a collection that the bank made for Owen, and one for $180, which represents the amount of interest that Owen had earned on its interest-bearing account in June. What is the true cash balance? 200441 Multiple Choice O O $15,160 $14,910 $15,380 $13,680arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning