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Evaluate the following items, and determine the correct amount to report on the income statement for each, using the accruals basis accounting for the referenced period of time.
(a) Revenues: a company had beginning receivables of $8,000. the company reported cash basis revenues of $100,000. The ending accounts receivable amounted to $18,000.
(b) Supplies: B Company purchased $25,000 of supplies. Supplies on hand decreased by $5,000 during the period.
(c) Rent: C Company started the year with no prepaid rent, and ended the year with $1,000 in prepaid rent. Rent expense on a cash basis was $13,000.
(d) Equipment: At the beginning of the year, D Company purchased and expensed an item of equipment for $20,000. The equipment has a 4-year life, and will be worthless after four years.
(e) Wages: There was no wages payable at the beginning of the year. E Company paid $145,000 in wages during the year, and owed an additional $12,000 at year’s end.kindly help.
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Hi,
Was just casually browsing the forums and thought I would attempt to answer this one (good way of testing ones knowledge).
(a) Revenues. Cash sales of $100K. Difference between opening & closing receivables = 10K. Therefore total sales figure to be recognised in the income statement is $110K.
(b) Supplies. Purchases made in year $25K. Less supplies sold during year $5K. Cost of Goods Sold recognised in the financial statements is therefore $20K (assume the company had no opening stock).
(c) Rent. Rent paid in year of $13K includes $1K worth of rent for next accounting period. Therefore the rent figure to be recognised in this year’s period is $12K.
(d) Equipment = fixed asset purchase, therefore the cost of the asset is capitalised in the statement of financial position as $20K. The cost of the asset is recognised in the income statement over the useful life of the asset (4 years). Therefore depreciation charge of $5k.
(e) Wages. Wages paid in the year of $145K. Additional liability at year of $12K. Therefore total wages regonsised in the income statement for the period is $157K ($145K + $12K).
Hope this helps you.
Regards
Andrew
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