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.

Prepare in good form an unadjusted classified income statement for the current year ended December 31. (Ignore income taxes.) (Enter your answer in thousands, not in dollars.)

Conover Inc

Income Statement (unadjusted)

Operating Revenues

Total Operating Revenues

Operating Expenses

Total Operating Expenses

Other item

Answer 1

Conover Inc

unadjusted classified income statement

for the current year ended December 31.

Operating Revenues
Consulting Fees revenues	$                 11,120
Total operating revenues (A)	$                      11,120
Operating expenses:
Salaries expense	$                    6,210
Utilities expense	$                1,800
Total operating expenses (B)	$                  8,000
Operating income (A - B)	$               3,120
Other item
Interest revenue	$               10
Net income	$              3,120

Notes:

1. Accounting is based on accrual concept. Revenue is recognized on this fundamental concept.

Any advance received against work to be performed later is just liability and not revenue because the services are yet to be performed. So, $ 890 is not recognized as revenue.

On the same grounds, $ 1620 is recognized as services are performed i.e. accrued but payment not received.

Total consulting fees revenue would be = 9500 + 1620 = $ 11,120

2. Only salaries expense that has been incurred for current year is recognized in income statement. The rest are ignored for income statement purposes.

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