Question

In: Accounting

Based on the following transactions, calculate the revenues, expenses, and net income that would be reported...

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. The company declared dividends of $7,000 on December 15, 2020, to be paid on January 15, 2021. Does this transaction affect Cash in 2020? How should it be recorded?

Solutions

Expert Solution

Sol :

Computation of Net Income as per Accrual Basis

Particulars Amount Particulars Amount

Inventory Purchased 70000 Cash Sales     80,000

Lease Rentals    12,000     Credit sales 20,000

Supplies purchased 5500 Closing Inventory(70000-60000) 10,000

Wages Expense 38000 Closing supplies 500

Net Loss    15,000

Total 125500 125500

Computation of Net Income as per Accrual Basis

Particulars Amount    Particulars Amount

Inventory Purchased 70000 Cash Sales 80,000

Lease Rentals    11,000    Cash Collected on sales   20,000

Supplies purchased 5500 Closing Inventory(70000-60000) 10000

Wages Expense 37500 Closing supplies    500

Net Loss 13500

Total 124000 124000

Revenue on cash Basis & Accrual Basis

Cash Basis Accrual Basis

Total Sales of 100,000 of which 80% are cash sales 80000 100,000

Expenditure on Cash Baiss & Accrual Basis

Lease Rentals paid on following month (1000*11) 11000 12000

Wages paid 37500 unpaid 500 37500 38000

2.

Journal entry at the time of declaration of dividends

Dec 15,2020 Retained earnings Dr    7000

Dividend Payable    7000

Journal entry at the time of payment of dividends:

Jan 15,2021 Dividend Payable Dr    7000

Cash 7000

Dividend payable on closing does not affect cash balance as on closing date.

ekkarill92 answered 1 year ago
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