Question

help with 2-6. the Beginning and End Balance and Income Statement is provided. Please and thank you.

2. For the accounting period, does the data contained in the financial statements indicate that total revenue on a cash basis for the year too high or too low? Why? 3. What is the accrual adjusted revenue for the year? 4. For the accounting period, does the data contained in the financial statements indicate that total expenses are too high or too low? Why? 5. What is the accrual adjusted expenses for the year? 6. What is the accrual adjusted net farm income from operations for the year? How does this differ from the cash basis net farm income and why?

New Images below. help with 2-6

beginning balance sheet

end balance sheet

income statement

Answer 1

2 The cash revenue is too low. The reason being there are no accounts receivable in balance sheet The entire sales is cash sales 3 Accrual adjusted revenue is same as cash revenue $1,400,000 reported in Income Statement 4 Total expenses reported are too low due to the reason that balance in inventory and prepaid expenses have reduced which means they should have been accounted as expenses as per accrual basis $700,000 $100,000 $250,000 $1,050,000 5 Accrual adjusted expenses Crop Production expenses Repair and maintenance Cash rent Total cash expenses Add: Decrease in Grain inventory Decrease in supplies & prepaid expenses Total accrued expenses Depreciation Total Operating expenses $200,000(Opening balance - Closing balance) $100,000(Opening balance - Closing balance) $1,350,000 $100,000 $1,450,000 6 Accrual adjusted net farm income Revenue Crop revenue Total Operating expenses Operating Income(Loss) Interest expense Net Farm Income (Loss) $1,400,000 $1,450,000 as calculated above -$50,000 $50,000 $100,000 Explanation: The accrual concept accounts for expenses based on when they are accrued and not when they are paid Hence inventory and prepaid expenses balance reduction are charged to Income statement Cash basis of accounting accounts for expenses based on when they are paid and not when they are incurred Hence the net income as per accrual concept and cash basis is different