1 / 23

Cash to Accrual Adjusting Entries and Income Statement

Chapter 2. Illustrated Solution: Problem 2-30. Cash to Accrual Adjusting Entries and Income Statement. Part 1. Gee Enterprises records all transactions on the cash basis. You have been asked to prepare an income statement on the accrual basis.

Download Presentation

Cash to Accrual Adjusting Entries and Income Statement

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 2 Illustrated Solution: Problem 2-30 Cash to Accrual Adjusting Entries and Income Statement

  2. Part 1 • Gee Enterprises records all transactions on the cash basis. • You have been asked to prepare an income statement on the accrual basis. • Prepare adjusting entries to convert the books from a cash to an accrual basis.

  3. Part 1 (a) Situation Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected.

  4. Part 1 (a) Situation Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected. Solution Accounts Receivable …………………………… 28,000 Sales ………………………………………… 28,000 Doubtful Accounts Expense …………………… 3,000 Allowance for Doubtful Accounts ………… 3,000

  5. Part 1 (b) Situation Salaries of $11,000 for December 2002 were paid on January 5, 2003. Ignore payroll taxes.

  6. Part 1 (b) Situation Salaries of $11,000 for December 2002 were paid on January 5, 2003. Ignore payroll taxes. Solution Salaries Expense ……………………………… 11,000 Salaries Payable …………………………… 11,000

  7. Part 1 (c) Situation Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2002.

  8. Part 1 (c) Situation Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2002. Solution Prepaid Rent ……………………………………… 9,000 Rent Expense ………………………………… 9,000

  9. Part 1 (d) Situation The bill for December’s utility costs of $2,700 was paid January 10, 2003.

  10. Part 1 (d) Situation The bill for December’s utility costs of $2,700 was paid January 10, 2003. Solution Utilities Expense …………………………………. 2,700 Accrued Liabilities …………………………… 2,700

  11. Part 1 (e) Situation Equipment of $30,000 was purchased on January 1, 2002. The expected life is 5 years, no salvage value. Assume straight-line depreciation.

  12. Part 1 (e) Situation Equipment of $30,000 was purchased on January 1, 2002. The expected life is 5 years, no salvage value. Assume straight-line depreciation. Solution Depreciation Expense …………………………… 6,000 Accumulated Depreciation—Equipment ….. 6,000 $30,000/5 years.

  13. Part 1 (f) Situation Commissions of 15% of sales are paid on the same day cash is received from customers.

  14. Part 1 (f) Situation Commissions of 15% of sales are paid on the same day cash is received from customers. Solution Commission Expense ……………………………. 3,750 Commission Payable ………………………… 3,750 $25,000 x 15%. No commission on uncollectible accounts.

  15. Part 1 (g) Situation A 1-year insurance policy was issued on company assets on July 1, 2002. Premiums are paid annually in advance.

  16. Part 1 (g) Situation A 1-year insurance policy was issued on company assets on July 1, 2002. Premiums are paid annually in advance. Solution Prepaid Insurance ………………………………. 3,000 Insurance Expense …………………………. 3,000 $6,000 x 6/12.

  17. Part 1 (h) Situation Gee borrowed $50,000 for one year on May 1, 2002. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2002. (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.)

  18. Part 1 (h) Situation Gee borrowed $50,000 for one year on May 1, 2002. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2002. (Quarterly payments will also be made on November 1, 2002, February 1, 2003 and May 1, 2003.) Solution Interest Expense ………………………………… 1,000 Interest Payable ……………………………. 1,000 $50,000 x 12% x 2/12.

  19. Part 1 (i) Situation The income tax rate is 40%. No prepayments of income taxes were made during 2002.

  20. Part 1 (i) Situation The income tax rate is 40%. No prepayments of income taxes were made during 2002. Solution Income Tax Expense….………………………… 26,300 Income Taxes Payable..……………………. 26,300 $65,750 x .4; see Part 2.

  21. Part 2 Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1.

  22. Part 2 Prepare the income statement for the year ended December 31, 2002, based on the entries in Part 1.

  23. End of Problem

More Related