Test
berry.siahayaAccrual
2 years ago
1
files (1)AFMUTSWord.docx
AFMUTSWord.docx
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Budi started a small boat repair service company during the current year. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers. At the end of the year, he prepared the following statements based on information stored in a large filing cabinet |
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BUDI COMPANY Profit for the Current Year |
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Service fees collected in cash during the current year |
55 |
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Cash dividends received |
10000 |
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Total |
65000 |
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Expense for operations paid during the current year |
22 |
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Cash stolen |
500 |
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New tools purchased during the current year (cash paid) |
1000 |
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Supplies purchased for use on service jobs (cash paid) |
3200 |
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Total |
26700 |
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Profit |
38300 |
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BUDI COMPANY Assets Owned at the End of the Current Year |
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Cash in checking account |
29300 |
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Building (at current market value) |
32000 |
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Tools and equipment |
18000 |
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Land (at current market value) |
30000 |
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Stock in ABC Industrial |
130000 |
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Total |
239300 |
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The following is a summary of completed transactions: |
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a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: |
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Building 21000 |
Land 20000 |
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Tools and equipment 17000 |
Cash 1000 |
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b. Earned service fees during the current year of 87000; of the cash collected 20000 was for deposits from customers on work to be done by Budi in the next year. |
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c. We received the cash dividends on shares of ABC Industrial stock purchased by Budi six years earlier (the stock was not owned by the company). |
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d. He incurred operating expenses during the current year of 61000 |
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e. Determined amount of supplies on hand (unused) at the end of the current year as 700 |
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f. A temporary employee subsequently fired, stole 500 cash from the business. There was no insurance coverage for theft |
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g. We have purchased tools and equipment during the year |
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Required: |
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1. Did Budi prepare the income statement on a cash basis or an accrual basis? Explain how you can tell Which basis should be used? Explain why! |
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2. Reconstruct the correct entries under accrual accounting principles and post the effects to T accounts |
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3. Prepare an accrual-based income statement a statement of stockholder's equity (only for one shareholder) and a classified balance sheet. Explain (using footnotes) the reason each change that you make to the income statement |
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4. What additional information would assist you in formulating your decision regarding the loan to Budi? |
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