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 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.)
Trending nowThis is a popular solution!
Chapter 2 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
- PA3. LO 8.5Domingo Company started its business on January 1, 2019. The following transactions occurred during the month of May. Prepare the journal entries in the journal on Page 1.The owners invested $10,000 from their personal account to the business account.Paid rent $500 with check #101.Initiated a petty cash fund $500 with check #102.Received $1,000 cash for services rendered.Purchased office supplies for $158 with check #103.Purchased computer equipment $2,500, paid $1,350 with check #104, and will pay the remainder in 30 days.Received $800 cash for services rendered.Paid wages $600, check #105.Petty cash reimbursement: office supplies $256, maintenance expense $108, postage expense $77, miscellaneous expense $55. Cash on hand $11. Check #106.Increased petty cash by $30, check #107.arrow_forwardJ 2 The accounts receivable amount for GIRAFE Ltd. as of June 30, 2022, was $5.564 million. The corporation wrote down a $450,000 bad debt from a local client whose business suffered severely as a result of COVID-19 difficulties in the previous financial year. At the time, it was anticipated that this contribution would not be recouped, so a provision for it was created in the accounts. The customer informed GIRAFE Ltd on July 1, 2022, that they are now in a position to pay off their obligation and will send payment in full on July 31, 2022.arrow_forwardPROBLEM 1. 4111 Company had the following items in its "Cash and cash equivalents" account as of December 31, 2022: Cash on hand P125,000Bank time deposit (acquired 12/30/2022; due in 2/28/2023) 150,000Petty cash fund - including P2,550 unreplenished vouchers dated December 27-30, 2022; and P1,200 dated January 4, 2023 10,000Cash in foreign bank - unrestricted ($5,000; average rate - P50; closing rate - P52) 250,000Cash restricted for additions to plant (to be disbursed in 2025) 1,200,000Cash in bank - to be used for payment of 2023 dividends and taxes 1,380,000 How much should be reported as cash and cash equivalents as of December 31, 2022? a. P1,875,450 b. P1,922,450 c. P1,921,250 d. P1,944,250 PROBLEM 2. The following data were taken from the accounting records of 423, Inc Balance at January 1, 2022 5,000 balls @ P20Purchases:…arrow_forward
- Question 34 Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2022 and 2021 are provided below. BALANCE SHEETS 12/31/22 12/31/21 Cash $408,000 $ 192,000 Accounts receivable 360,000 216,000 Inventory 384,000 480,000 Property, plant and equipment 608,000 960,000 Less accumulated depreciation (320,000) (304,000) 288,000 656,000 $1,440,000 $1,544,000 Accounts payable $ 176,000 $ 96,000 Income taxes payable 352,000 392,000 Bonds payable 360,000 600,000 Common stock 216,000 216,000 Retained earnings 336,000 240,000 $1,440,000 $1,544,000 INCOME STATEMENT For the Year Ended December 31, 2022 Sales revenue $8,400,000 Cost of sales 7,152,000 Gross profit 1,248,000 Selling expenses $600,000…arrow_forwardMa4. 1. Cash reserves on the Tri-State Medical Equipment Corporation's balance sheet presently amount to $111,200. When Tri-State pays cash for 20% of the purchase price of a new delivery truck, the cash payment will: 1) increase the company's cash reserves. 2) decrease cash on the balance sheet. 3) require an entry on the Statement of Retained Earnings. 4) require an entry to the Reserve for Depreciation on the income statement. 2. If an organization has operating income of $120,000, net income of $150,000, total revenue of $2,000,000, total assets of $1,000,000, and a net worth of $500,000, return on assets is: 1) 6.0%. 2) 7.5%. 3) 12.0%. 4) 15.0%. 5) 30.0%.arrow_forward*P7.13 (Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2020. The bank statement as of that date showed a balance of $4,150. Upon comparing the statement with the cash records, the following facts were determined. 1. There were bank service charges for June of $25. 2. A bank memo stated that Bao Dai’s note for $1,200 and interest of $36 had been collected on June 29, and the bank had made a charge of $5.50 on the collection. (No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the bank for collection.) 3. Receipts for June 30 for $3,390 were not deposited until July 2. 4. Checks outstanding on June 30 totaled $2,136.05. 5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to $253.20 on June 29. 6. A customer’s check for $90 (as payment on the customer’s Accounts Receivable) had been entered as $60 in the cash receipts…arrow_forward
- PA5. LO 8.5Inner Resources Company started its business on April 1, 2019. The following transactions occurred during the month of April. Prepare the journal entries in the journal on Page 1. The owners invested $8,500 from their personal account to the business account. Paid rent $650 with check #101. Initiated a petty cash fund $550 check #102. Received $750 cash for services rendered. Purchased office supplies for $180 with check #103. Purchased computer equipment $8,500, paid $1,600 with check #104 and will pay the remainder in 30 days. Received $1,200 cash for services rendered. Paid wages $560, check #105. Petty cash reimbursement office supplies $200, Maintenance Expense $140, Miscellaneous Expense $65. Cash on Hand $93. Check #106. Increased Petty Cash by $100, check #107.arrow_forward4. UNMI Company had the following account balances at December 31, 2020:Cash in banks P 2,700,000Cash on hand 150,000Cash legally restricted for additions to plant (expected to be disbursed in 2003) 1,920,000 Cash in banks includes P720,000 of compensating balances against short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Best. In the current assets section of UNMI’s December 31, 2002 balance sheet, total cash should be a. 4,770,000 b. 2,850,000 c. 2,700,000 d. 2,130,000 5. These are deductions made by the bank to the depositor’s bank account but not yet recorded by the depositor.a. Credit memos (CM) b. Debit memos (DM) c. Outstanding checks (OC)d. Deposits in transit (DIT) 6. Bank statements provide information about all of the following excepta. checks cleared during the period.b. NSF checks.c. bank charges for the period.d. errors made by the company. PLEASE ANSWER IMMEDIATELYarrow_forwardSP 8 Santana Rey receives the March bank statement for Business Solutions on April 11, 2022. The March 31 bank statement shows an ending cash balance of $67,566. The general ledger Cash account, No. 101, shows an ending cash balance per books of $68,057 as of March 31 (prior to any reconciliation). A comparison of the bank statement with the general ledger Cash account, No. 101, reveals the following.A.The bank erroneously cleared a $500 check against the company account in March that S. Rey did not issue. The check was actually issued by Business Systems. B. On March 25, the bank statement lists a $50 charge for a safety deposit box. Santana has not yet recorded this expense. C. On March 26, the bank statement lists a $102 charge for printed checks that Business Solutions ordered from the bank. Santana has not yet recorded this expense. D. On March 31, the bank statement lists $33 interest earned on Business Solutions’s checking account for the month of March. Santana has not yet…arrow_forward
- Problem 3. The books of Marikit’s Service, Inc. disclosed a cash balance of P687,570 on December31, 2020. The bank statement as of December 31 showed a balance of P547,800. Additionalinformation that might be useful in reconciling the two balances follows:a. Check number 748 for P30,000 was originally recorded on the books as P45,000.b. A customer’s note dated September 25 was discounted on October 12. The note wasdishonored on December 29 (maturity date). The bank charged Marikit’s account forP142,650, including a protest fee of P2,650.c. The deposit of December 24 was recorded on the books as P28,950, but it was actually adeposit of P27,000.d. Outstanding check totaled P98,850 as of December 31.e. There were bank service charges for December of P2,100 not yet recorded on the books.f. Marikit’s account had been charged on December 26 for a customer’s NSF for check forP12,960g. Marikit properly deposited P6,000 on December 3 that was not recorded by the bank.h. Receipts of December 31…arrow_forwardQuestion 4 a)Outline five (5) reasons for the discrepancy between the cash book and the bank statement. b) XYZ Ltd commenced business on 1st January 2014. On that day, XYZ Ltd bought equipment on credit from CCC Ltd equipment Ltd at P85 000. The equipment will be used for 5 years and the estimated value at the end of the 5 years is P25, 000. Calculate the depreciation for the equipment at 10% for the first three years using the reducing balance methodarrow_forwardQuestion 48 Smiley Corp.'s transactions for the year ended December 31, 2021 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. Smiley's net cash used in financing activities for 2021 was $850,000. $900,000. $450,000. $350,000.arrow_forward
- Corporate Financial AccountingAccountingISBN:9781337398169Author:Carl Warren, Jeff JonesPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,