Question

please explain calculations how they get everything

andout5.pdf Handout 5 Mega keeps its accounting records on a cash basis during the year. At year end, it converts its books to the accrual basis for preparing its financial statements. At the end of 2018, Mega reported the following post-closing trial balance after converting it to the accrual basis. (Hint: These will also be the beginning balances for 2019.) Cash Accounts receivable Supplies Inventory Equipment Accumulated depreciation Accounts payable (for inventory) Salaries payable Income tax payable Common stock Retained earnings December 31, 2018 (accrual) Debit Credit $ 2,700 4,200 2,100 5,600 12,000 $ 4,800 6,100 500 2,000 7,000 6,200 At the end of 2019, you are asked to convert Mega's books from cash basis to accrual basis and prepare a balance sheet and income statement on an accrual basis. To do this, you are provided with the following information: You are provided with the following information as of December 31, 2019: Cash receipts from customers 67,300 Cash payments: To vendors (for inventory) To employees For prepaid supplies For other operating expenses (OE) To stockholders For the 2018 income tax liability that was paid on March 15, 2019 with tax returns 30.600 15,500 2,500 5,500 6.000 2,000 5.900 7.000 Other Information: Customers owed Mega Mega owed vendors (for inventory) Mega owed employees Physical count of inventory Physical count of supplies Income tax rate for 2019 900 6.300 1,000 25% Mega depreciates its equipment using the straight-line method over 10 years with no salvage value. Assume that the balance given for other operating expenses (OE) is the same for both cash and accrual

Answer 1

Items of income statement:

Cash sales (cash receipts from customers)	$67,300
Add: Amount owed by customers	$5,900
Less: Opening account receivables	$4,200
(i.e. net A/R increase $1,700)
Accrual basis sales	$69,000
Cash purchases	$30,600
Add: Amount owed to vendors for Inventory as on 31 December 2019	$7,000
Less: Amount owed to vendors for Inventory as on 31 December 2018	$6,100
(i.e. nte A/P increase $900)
Accrual basis purchases	$31,500
Cash payments to vendors	$30,600
Less: Closing Inventory	$6,300
Add: Opening Inventory	$5,600
(i.e. net Inventory increase $700)
Add: Closing vendors payable for Inventory	$7,000
Less: Opening vendors payable for Inventory	$6,100
(i.e. net payable increase $900)
Accrual basis cost of goods sold	$30,800
Cash payament to employees (cash salaries)	$15,500
Add: Amount owed to employees on 31 December 2019	$900
Less: Salaries payable on December 31 2018	$500
Salaries on accrual basis	$15,900
Cash payments for prepaid supplies	$2,500
Add: Supplies on December 31 2018	$2,100
Less: supplies on December 31 2019	$1,000
(i.e. net supplies utilized)
Supplies expense on accrual basis	$3,600
Depreciation on equipment = Opening balance of equipment ÷ estimated useful life
=$12,000÷10 years = $1,200
Income tax = 25% of IBIT = 25% of $12000 = $3,000

Balance sheet items:

Cash as on 31 December 2018	$2,700
Add: Total cash receipts	$67,300
Less: Total cash payments	$62,100
Cash as on 31 December 2019	$7,900
Accounts receivable (amount owed by customers)	$5,900
Supplies (as by count on 31 December 2019)	$1,000
Inventory (as by count on 31 December 2019)	$6,300
Accumulated depreciation as on 31 December 2018	$4,800
Add: Depreciation for the year	$1,200
Total accumulated depreciation	$6,000
Accounts payable (amount owed to vendors for Inventory)	$7,000
Salaries payable (amount owed to employees as on 31 December 2019)	$900
Income tax payable (as on 31 December 2019)	$3000
Common stock (as on 31 December 2018, no further change)	$7000
Retained earnings as on 31 December 2018	$6,200
Add: Profit for the year	$9,000
Less: Dividend paid	$6000
Retained earnings as on 31 December 2019	$9,200