Question

Question 3

AC Corp. maintains its financial records on the cash basis of accounting. AC Corp. is trying to secure financing from an investor who wishes to see the financial information on accrual basis. You, the CPA of the firm, have been requested to convert the financial information to accrual basis. You are provided with the following summarized data covering 2016, 2017, and 2018 by the firm.

		2016		2017		2018
Cash Receipts from Sales
On 2016 Sales		$180,000		$55,000		$12,000
On 2017 Sales		41,000		195,000		63,000
On 2018 Sales		23,000		43,000		215,000
Cash Payments for Expenses
On 2016 Expenses		93,000		20,000		7,000
On 2017 Expenses		18,000		105,000		24,000
On 2018 Expenses		16,000		21,000		138,000

Instructions:

1. Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the accrual basis. (4 points)
2. Using the data above, calculate the ending balances in Accounts Receivable, Prepaid Expense, Unearned Revenue and Accrued Expense as of December 31, 2016. (6 points)

Answer 1

for formulas and calculations, refer to the image below -

D2 X2016 2016 2017 2018 cash receipts from sale on 2016 sales on 2017 sales on 2018 sales 55000 195000 43000 12000 63000 215000 41000 23000 6 2016 2017 2018 cash payments for expenses on 2016 expenses on 2017 expenses on 2018 expenses 10 93000 20000 105000 21000 7000 24000 138000 16000 13 14 15 16 17 18 Income Statement of AC Cor 2016 2017 Sales D4+E4+F4 D5+E5+F5 Less: Expenses D10+E10+F10 D11+E11+F11 21 Net Income D17-D19 E17-E19 23 Balance as of December 31, 2016 Accounts Receivable Prepaid Expense Unearned Revenue Accrued Expense D17-D4 D11+D12 D5+D6 E10+F10 25 27