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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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(Appendix 3.1) Cash-Basis Accounting Puntarelli Contracting keep its accounting records on a cash basis during the year. At year end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2018, Puntarelli reported the following balance sheet items.

Chapter 3, Problem 15E, (Appendix 3.1) Cash-Basis Accounting Puntarelli Contracting keep its accounting records on a cash

It is now the end of 2019. The company’s checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300.

An examination of the cash payments shows that: (1) $30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for 2 years’ annual rent), and (3) $6,000 was withdrawn by T. Puntarelli.

On December 51, 2019, (1) customers owed Puntarelli Contracting 55,900, (2) Puntarelli owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Puntarelli is depreciating the equipment using straight line depreciation over a 10-year life (no residual value).

Required:

  1. 1. Using accrual based accounting, prepare a 2019 income statement (show supporting calculations).
  2. 2. Using accrual-based accounting, prepare a December 31, 2019, balance sheet (show supporting calculations).

1.

To determine

Prepare the income statement for the year ended December 31, 2019.

Explanation

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement for the year ended December 31, 2019:

Company P
Income Statement
For the Year Ended December 31, 2019
ParticularsAmount($)Amount($)
Sales revenue53,000 
Less: Cost of goods sold(30,800) 
Gross profit 22,200
Less: Operating expenses:  
Depreciation expenses1,200 
Other operating expenses10,000 
Total operating expense(11,200)
Net income $11,000

Table (1)

Working note 1: Calculate the amount of prepaid rent...

2.

To determine

Prepare the balance sheet as on December 31, 2019.

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