Question

At January 1 (beginning of its fiscal year), Conover, Inc., a financial services consulting firm, reported the following account balances (in thousands, except for par and market value per share):

Cash	$	1,900	Accounts payable	$	210
Short-term investments		410	Unearned revenue		1,320
Accounts receivable		3,570	Salaries Payable		870
Supplies		150	Short-term note payable		780
Prepaid expenses		4,720	Common stock ($1 par value)		50
Office equipment		1,530	Additional paid-in capital		6,560
Accumulated depreciation-office equipment*		(480)	Retained earnings		2,010

*This account has a credit balance representing the portion of the cost of the equipment used in the past.

1. Received $9,500 cash for consulting services rendered.
2. Issued 10 additional shares of common stock at a market price of $120 per share.
3. Purchased $640 of office equipment, paying 25 percent in cash and owing the rest on a short-term note.
4. Received $890 from clients for consulting services to be performed in the next year.
5. Bought $470 of supplies on account.
6. Incurred and paid $1,800 in utilities for the current year.
7. Consulted for clients in the current year for fees totaling $1,620, due from clients in the next year.
8. Received $2,980 from clients paying on their accounts.
9. Incurred $6,210 in salaries in the current year, paying $5,300 and owing the rest (to be paid next year).
10. Purchased $1,230 in short-term investments and paid $800 for insurance coverage beginning in the next fiscal year.
11. Received $10 in interest revenue earned in the current year on short-term investments.

3. Using the data from the T-accounts, amounts for the following at the end of the current year were (Enter your answer in thousands, not in dollars.)

Revenues	?	-	Expenses	?	=	Net Income	?
Assets	?	=	Liabilities	?	+	Stockholder Equity	?

What would net income be if Conover, Inc., used the cash basis of accounting? (Enter your answer in thousands, not in dollars.) ?

Answer 1

Credit Account title & explanation Cash Consulting Fees Revenue Debit 9500 9500 1200 Cash (10*120) Common Stock (10*1) Additional Paid in Capital 10 1190 640 Office Equipment Cash (640*25%) Short term Notes Payable 160 480 890 Cash Unearned Revenue 890 470 Supplies Accounts Payable 470 1800 Utilities expense Cash 1800 1620 Accounts Receivable Consulting Fees Revenue 1620

2980 Cash Accounts Receivable 2980 6210 Salaries expense Cash Salaries Payable 5300 910 Short-term Investments Prepaid expense Cash 1230 800 2030 Cash 10 Interest Revenue 10 T-Accounts Cash 160 Short-term Investments 410 1230 Accounts Receivable 3570 2980 1620 1800 1900 9500 1200 890 2980 5300 2030 7190 1640 2210

Supplies 150 470 620 Prepaid Expenses 4720 800 5520 Office Equipment 1530 640 2170 Accounts payable Accumulated depreciation 480 210 470 680 Unearned revenue 1320 890 2210 480 Common stock Salaries Payable 870 910 1780 Short-term note payable 780 480 1260 10 60 Retained earnings Additional paid-in capital 6560 1190 2010 Consulting Fees Revenue 9500 1620 11120 7750 2010 Interest Revenue Utilities expense 1800 Salaries expense 6210 10 98 99 100 1800 6210

102 3. Using the data from the T-accounts, amounts for the following at the end of the current year were 103 104 105 106 107 Revenues (11120+10) Less Expenses (1800+6210) Net Income 11130 8010 3120 Revenues = Expenses 8010 Net Income 3120 109 11130 - 110 112 Assets = Liabilities + Stokholder's Equity 18870 5930 + 12940 114 115 What would net income be if Conover, Inc., used the cash basis of accounting? 116 9500 118 119 10 120 9510 121 122 123 Revenues Consulting Fees Revenue Interest Revenue Total Revenues Expenses Utilities expense Salaries expense Total Expenses Net Income 1800 5300 124 125 7100 2410 126