Question

In: Accounting

A) On December 31, 2019, Pack-INT-Deliver Company completed its first year of operations. The following information...

A) On December 31, 2019, Pack-INT-Deliver Company completed its first year of operations. The following information has been provided for the year:

a. Sold packing supplies for $30,000 and provided $280,000 of delivery services.

b. All packing supplies sales were for cash.

c. Collected $212,000 of delivery service revenue.

d. Paid $15,000 cash to rent packing equipment, with $10,000 for rental in 2019 and the remaining amount for rental in 2020.

e. Spent $4,000 cash to repair delivery equipment during the year.

f. Bought packing supplies at a total cost of $46,000 and paid for $25,000 of these supplies. There were $20,000 of these supplies that have not yet been sold or used.

g. Paid employees $80,000 during the year.

h. Paid $16,000 for advertising for the year.

i. Used $14,000 in fuel for the delivery equipment.

j. Sold investments for $8,000 that had been purchased earlier in the year for $7,000.

k. Ordered $500 in spare parts and supplies.

l. Income tax expense for the year is $18,000.

1) Prepare an accrual basis income statement for Pack-and-Deliver Company for the year ended December 31, 2019. What would the net income be if Pack-and-Deliver used the cash basis instead? Explain why the net income reported on the income statement is usually not equal to net cash flows from operating activities on the statement of cash flows.

Solutions

Expert Solution

Pack INT Deliver Company
Accrual Basis Income Statement
Net Income Amount
Revenue
Delivery Services 280000
Packing Supplies 30000 310000
Cost of goods sold
Purchased supples 46000
Less: Closing Inventory 20000 26000
Operating Expenses
Rent 10000
Repair 4000
Salary 80000
Advertisment 16000
Fuel 14000
Supply 500 124500
Operating income 159500
Add: Gain on sale of Investment 1000
Income before taxes 160500
Income taxes expense 18000
Net income 142500
Pack INT Deliver Company
Cash Basis Income Statement
Net Income Amount
Revenue
Delivery Services 212000
Packing Supplies 30000 242000
Cost of goods sold
Purchased supples 46000
Operating Expenses
Rent 15000
Repair 4000
Salary 80000
Advertisment 16000
Fuel 14000
129000
Operating income 67000
Add: Gain on sale of Investment 1000
Income before taxes 68000
Income taxes expense 18000
Net income 50000
Net Income is not equal to net cash flows because net income is calculated by taking cut off periods into
consideration. Prepaid expenses are excluded , outstanding expenses are accounted for , likewise unearned
revenue are deducted whereas earned but not received revenues are accounted for.

ekkarill92 answered 2 years ago
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