ABC Company uses cash-basis accounting for its records. During Y1, ABC collected

Question

ABC Company uses cash-basis accounting for its records. During Y1, ABC collected $700,000 from its customers, made payments of $240,000 to its suppliers for inventory, and paid $186,000 for operating costs. ABC wants to prepare accrual-basis financial statements. In gathering information for the accrual-basis financial statements, ABC discovered the following: Customers owed ABC $64,000 at the beginning of Y1 and $47,200 at the end of Y1 ABC owed its inventory suppliers $24,000 at the beginning of Y1 and $37,200 at the end of Y1. ABC's beginning inventory balance was $56,400, and its ending inventory balance was $51,600. ABC had prepaid rent and insurance expense balance of $5,500 at the beginning of Y1 and $9,200 at the end of Y1. ABC had an accrued payroll expense balance of $14,000 at the beginning of Y1 and $23,000 at the end of Y1 Depreciation expense for Y1 was $67,000. Required: Determine the following, assuming the accrual basis of accounting is used. a. Accrual-basis revenue for Y1 for ABC Company is $ b. Accrual-basis COGS for Y1 for ABC Company is $ c. Accrual-basis total income for Y1 for ABC Company is $ HINT: To solve for COGS, recall the adjusting entry/formula to solve for COGS from your Ch. 3 in-class notes. What is the amount of accrual-basis purchases?

Explanation / Answer

Req a: Accrual basis Revenue: Ending balance of Accounts receivable 47200 Aadd: Collections of customers 700000 Less: Beginning balance of Accounts receivable 64000 Sales revenue generated 683200 Req b: Ending balance of Accounts payable 37200 Add: payment made 240000 Less: Beginning balance of Accounts payable 24000 Purchases made 253200 Purchases of Inventory 253200 Add: Beginning inventory 56400 Less: ending inventory 51600 Cost of Good sold 145200 Req c: Operating expense for the period: Operating expense paid 186000 Less: Prepaid at the end 9200 Add: Prepaid at beginning 5500 182300 Add: Accrued at end 23000 Less: Accrued in the beginning 14000 Operating expense incurred 191300 Total income for the Year-1 Sales revennue 683200 Less: Cost of goods sold 253200 Gross margin 430000 Less: Operating expense 191300 Less: Depreciation 67000 net Operating income 171700

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