Stephen Anest started a new business called \"Repairs R Us, Inc.\" at the beginn

Question

Stephen Anest started a new business called "Repairs R Us, Inc." at the beginning of the year. Unfortunately, Stephen has not maintained any accounting records, except for keeping track of all cash receipts and cash disbursements which are presented below. In addition, all unpaid invoices are kept in a file until they are paid. Cash Receipts: Investment by Owner - $45,000 Cash collected from customers - $72,000 Total Cash Received - $117,000 Cash Disbursements: Show equipment - $25,000 Repair supplies - $15,000 Rent - $7,000 Insurance Premiums - $1,500 Advertising - $1,000 Utilities - $1,500 Employee' Wages - $18,500 Dividends to owner Stephen Anest - $10,000 Total Cash Disbursed - $79,500 Cash Balance as of December 31, 2011 $37,500 Anest has asked you to prepare an accrual basis income statement for the year. The following information should help in the preparation of the income statement: 1. The equipment has a useful life of ten years. 2. Supplies on hand at the end of the period have a cost of $3,000. 3. The shop rent is $500 per month, but the lease requires two months in advance. 4. The insurance was paid at the beginning of the year and represents a two-year policy. 5. Customers owe the shop $3,200 for services already performed. 6. The workers were hired this year and are owed $550 at the end of the year for work in Dec

Explanation / Answer

Wages should be $19,050 which is actual wages plus wages that are due. Insurance paid for the first year should be written off $750 ($1,500/2). Depreciation on equipment is $2,500 ($25,000/10 years) Receipts include actual collections of $72,000 plus that which is due from customers $3,200.

Repair R Us Balance Sheet Liabilities Assets Capital $ 45,000.00 Show Equiptment $ 22,500.00 Retained Earnings $ 22,400.00 Repair supplies $   3,000.00 Wages Payable $      550.00 Rent advance $   1,000.00 insurance prepaid $      750.00 Debtors $   3,200.00 Cash $ 37,500.00 $ 67,950.00 $ 67,950.00 Repair R Us Income Statement (accrual Basis) Particulars Particulars Rent $   6,000.00 Receipts $         75,200.00 Advertisment $   1,000.00 Utilities $   1,500.00 Wages $ 19,050.00 Dividends $ 10,000.00 Depreciation $   2,500.00 Insurance $      750.00 Supplies written off $ 12,000.00 Net Income $ 22,400.00 $ 75,200.00

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