Near the end of its first year of operations, December 31, 2018, Creative Designs Ltd. approached the local bank for a $20,000 loan and was asked to submit financial statements prepared on an accrual basis. Although the company kept no formal accounting records, it did maintain a record of cash receipts and payments. The following information is available for the year ended December 31:

Additional information:
1. Fees from design work earned but not yet collected amounted to $2,400.
2. The equipment was purchased at the beginning of January and has an estimated six-year useful life. The company uses straight-line depreciation.
3. Supplies on hand on December 31 were $1,260.
4. Rent payments included a $1,500 per month rental fee and a $2,000 deposit that is refundable at the end of the two-year lease. (Hint: Use the Prepaid Rent account for the refundable deposit.)
5. The insurance was purchased on February 1 for a one-year period expiring January 31, 2019.
6. Salaries earned for the last four days in December and to be paid in January 2019 amounted to $3,050.
7. At year end, it was determined that an additional $7,000 is owed for income tax.
Instructions
(a) Calculate the cash balance at December 31.
(b) Prepare an accrual-based
(1) Income statement,
(2) Statement of changes in equity,
(3) Statement of financial position.
Compare cash and accrual-based income statements.

Transcribed Image Text:

Cash Receipts Cash Payments Issue of common shares Fees earned Equipment Supplies Rent Insurance Income tax Advertising Salaries Dividends declared S 20,0oo 巧7500 $ 35,400 8,600 20,00O 3,840 6,000 6,80o 59,800 10.000 $150,440 $177.6oo