Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis
ID: 2377366 • Letter: S
Question
Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $170,000 from a local bank and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2013, the following cash flows were recorded:
You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities:
In addition, you learn that the bank loan was dated September 30, 2013, with principal and interest at 6% due in one year. Depreciation on the company
Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $170,000 from a local bank and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2013, the following cash flows were recorded:
Explanation / Answer
Stanley and Jones Lawn Service Company
Income Statement
For the Year Ended December 31, 2013
Sales revenue (1) $311,500
Operating expenses:
Salaries $187,000
Supplies (2) 31,850
Rent 16,000
Insurance (3) 3,300
Miscellaneous(4) 25,900
Depreciation 17,000
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Total operating expenses 281,050
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Operating income 30,450
Other expense:
Interest (5) 2,550
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Net income $27,900
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(1) $390,000 cash collected less $8500 decrease in accounts receivable.
Cash 320,000
Accounts receivable (decrease in account) 8500
Sales revenue (to balance) 311,500
(2) $32,000 cash paid for the purchase of supplies less $150 increase in supplies.
Supplies expense (to balance) 31,850
Supplies (increase in account) 150
Cash 32,000
(3) $6,000 cash paid for insurance less $2,000 ending balance in prepaid insurance.
Insurance expense (to balance) 3,300
Prepaid insurance (increase in account) 2,700
Cash 6,000
(4) $27,000 cash paid for miscellaneous expenses plus increase in accrued liabilities.
Miscellaneous expense (to balance) 25,900
Accrued liabilities (increase in account) 1,100
Cash 27,000
(5) $170,000 x 6% x 3/12 = $2550
Interest expense 2550
Interest payable 2550
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