Question

Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $210,000 from a local bank, and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2021, the following cash flows were recorded: $430,000 Cash collected for services to customers Cash paid for Salaries Supplies Rent Insurance Miscellaneous Het operating cash flow $191,000 36,000 20,000 10,000 31,000 288,000 $ $ 142,000 You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities: January 1, 2021 December 31, 2021 Accounts receivable $32,000 $ 27,000 Prepaid insurance 3,100 Supplies 2,100 3,100 Accrued liabilities (for miscellaneous expenses) 3,500 5,000 0 In addition, you learn that the bank loan was dated September 30, 2021, with principal and interest at 6% due in one year. Depreciation , on the company's equipment is $10,000 for the year. Required: Prepare an accrual basis income statement for 2021. (Ignore income taxes.) STANLEY AND JONES LAWN SERVICE COMPANY Income Statement For the Year Ended December 31, 2021 Operating expenses: Total operating expenses Operating income

Answer 1

Solution:

STANDLEY AND JONES LAWN SERVICE COMPANY
Inocme statement
For the year Ended December 31, 2021
Sales revenue (430000 - 32000 + 27000)		4,25,000
Operating expenses
Salaries expense	1,91,000
Supplies expense (36000 - 3100 + 2100)	35,000
Rent expense	20,000
Insurance expense (10000 - 3100)	6,900
Miscellaneous expense (31000 + 5000 - 3500)	32,500
Depreciation expense	10,000
Total operating expense		2,95,400
Operating Income		1,29,600
Other expense
Interest expense (210000 x 6% x 3/12)		3150
Net Income		1,26,450