Reconstruct the correct entries under accrual accounting principles and post the effects to T accounts ????????Budi started a small boat repair service company during the ??cur
Reconstruct the correct entries under accrual accounting principles and post the effects to T accounts
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 BUDI COMPANY
Profit for the Current Year Service fees collected in cash during the current year 55 Cash dividends received 10000 Total 65000 Expense for operations paid during the current year 22 Cash stolen 500 New tools purchased during the current year (cash paid) 1000 Supplies purchased for use on service jobs (cash paid) 3200 Total 26700 Profit 38300 BUDI COMPANY
Assets Owned at the End of the Current Year Cash in checking account 29300 Building (at current market value) 32000 Tools and equipment 18000 Land (at current market value) 30000 Stock in ABC Industrial 130000 Total 239300 The following is a summary of completed transactions: 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: Building 21000 Land 20000 Tools and equipment 17000 Cash 1000 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. 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). d. He incurred operating expenses during the current year of 61000 e. Determined amount of supplies on hand (unused) at the end of the current year as 700 f. A temporary employee subsequently fired, stole 500 cash from the business. There was no insurance coverage for theft g. We have purchased tools and equipment during the year
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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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