The income statement shown on the next page was prepared by Barbara Merino, owner of Merino's Beauty

Question:

The income statement shown on the next page was prepared by Barbara Merino, owner of Merino's Beauty Supplies. The business is a sole proprietorship that sells skin and hair care products. An accountant who looked at the income statement told Merino that the statement does not conform to generally accepted accounting principles.

Instructions

Prepare an income statement for Merino's Beauty Supplies in accordance with generally accepted accounting principles.

The income statement shown on the next page was prepared

The following additional information was made available by Merino:
a. On January 1, 2016, accounts receivable from customers totaled $35,000. On December 31,
2016, receivables totaled $30,250.
b. On December 31, 2016, accounts receivable amounting to $2,200 were expected to be uncollectible.
c. On January 1, 2016, accounts payable owed to merchandise suppliers were $22,000. On December 31, 2016, the outstanding accounts payable were $35,710.
d. Included in Salaries Expense is $18,000 that Merino was "paid" for her personal work in the business.
e. Included in Interest Expense is $3,400 that Merino withdrew as interest on her capital investment.
f. Miscellaneous repairs of $1,500 were charged to Store Equipment during the year. No new equipment was purchased.
g. Merino explains that since the estimated value of her store equipment has increased by $7,500 during the year, no depreciation expense was recorded. The store equipment cost $56,000 and had an estimated useful life of 10 years with estimated salvage value of $4,000.
Analyze: The entries required to correct situations a.-g. would affect several permanent accounts for Merino's Beauty Supplies. List the permanent accounts affected?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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College Accounting Chapters 1-30

ISBN: 978-0077862398

14th edition

Authors: John Price, M. David Haddock, Michael Farina

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