Question

13 Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $110,000 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: 6.25 points $330,000 Cash collected for Services to customers Cash paid for Salaries Supplies Rent Insurance Miscellaneous Net operating cash flow eBook $181,000 26,000 10,000 7,000 21,000 245,000 $ 85,000 Hint References You are able to determine the following information about accounts receivable, prepaid expenses, and accrued abilities: January 1, 2021 December 31, 2021 Mccounts receivable $33,000 $27,500 Prepaid Insurance 0 2,100 Supplies 1,100 1,550 Accrued liabilities (for miscellaneous expenses) 3,000 2,500 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 $11,000 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 Cash

Answer 1

Under Accrual basis ,revenue is recognized at the time it is earned and expenses when incurred whereas under cash basis ,revenue is recognized at the time it is received and expenses when paid .

STANLEY AND JONES LAWN SERVICE COMPANY Income statement for the year ended September 30,2021
Sales revenue		324500
operating expenses
Salaries	181000
Supplies expense	25550
Rent	10000
Insurance	4900
Miscellaneous expense	21500
Depreciation	11000
Total operating expense		(253950)
operating income		70550
Other expense
Interest expense		(1650)
Net income		68900

working Note :

Sales revenue =Accounts receivable,December 31 2021 + cash collection from customers -Accounts receivable 1 Jan

          = 27500 +330000 -33000

           = 324500

b)Supplies used =Beginning balance +supplies purchased for cash -ending balance

            = 1100 +26000 -1550

           = 25550

c)Insurance expired = Beginning balance + insurance purchased for cash - ending balance

               = 0 +7000-2100

             = 4900.

d)Miscellaneous expense = Ending accrued liabilities +cash paid for liabilities - beginning balance

     = 3000+21000 -2500

      = 21500

e)Interest expense accrued for 3 months (30Sept - 31Dec )= 110000*.06*3/12 = 1650