Question

1. Based on the following transactions, calculate the revenues, expenses, and net income that would be reported on (a) the cash basis and (b) the accrual basis:

• i. Inventory costing $70,000 was purchased on account.
• ii. Inventory costing $60,000 was sold for $100,000. Eighty percent of the sales were for cash.
• iii. Cash collected from credit customers (those who bought on account) totalled $20,000.
• iv. A lease was signed at the beginning of the year, requiring monthly payments of $1,000. The rent for the first month was paid when the lease was signed. After that, the $1,000 rent was paid on the last day of each month, to cover the following month.
• v. Supplies costing $5,500 were purchased for cash. At the end of the year, $500 of the supplies were still unused.
• vi. Wages of $37,500 were paid during the year. Also, wages of $500 remained unpaid at year end

2. Consider this and prepare journal entries for a) and b) for the year of 2020.

December 31, 2019

Equipment

330,000

• a. Paid $102,000 for wages during the year. At year end, the company owed another $2,000 to the employees for the last week of work in December.
  • Looks like [DR Wages Expense 102,000 CR Cash 102,000 & DR Wages Expense 2,000 CR Wages Payable 2,000] is incorrect.
  • Why are amounts like 8,000, 96,000, or 94,000 appearing for this transaction?
• b. Depreciated the equipment for the year. The company had bought its equipment at the beginning of 2017, and it was expected to last 10 years and have a residual value of $30,000.
  • Should I use 8 years left or 7 years left if the equipment was bought at the beginning of 2017?

Thank you kindly! Will give a thumbs up if the answer is correct and elaborate :)

Answer 1