Robert Brissette, a local massage therapist, decided to sell his practice and retire. He has had discussions with a therapist from another province who wants to relocate. The discussions are at the complex stage of agreeing on a price. The financial statements of Robert€™s practice, Brissette Stress Reduction, played an important role in this process. Robert€™s secretary, Kelsey Doucette, maintained the records, under his direction. Each year, Kelsey developed a statement of net earnings on a cash basis from the records she maintained but she did not prepare a statement of financial position. Upon request, Robert provided the other therapist with the following statements for 2015 prepared by Kelsey:

Upon agreement of the parties, you have been asked to examine the financial figures for 2015. The other therapist said, €œI question the figures because, among other things, they appear to be on a 100 percent cash basis.€ Your investigations revealed the following additional data at December 31, 2015:
a. Of the $ 130,000 in therapy fees collected in 2015, $ 30,000 was for services performed prior to 2015.
b. At the end of 2015, therapy fees of $ 6,000 for services performed during the year were uncollected.
c. Office equipment owned and used by Brissette Stress Reduction cost $ 8,000. It is depreciated at a rate of $ 800 per year.
d. An inventory of office supplies at December 31, 2015, reflected $ 400 worth of items purchased during the year that were still on hand. Also, the records for 2014 indicate that the supplies on hand at the end of that year were about $ 250.
e. At the end of 2015, Kelsey, whose salary is $ 24,000 per year, had not been paid for the last week of December because the next payday is January 8, 2016.
f. The $ 140 phone bill for December 2015 was not paid until January 11, 2016.
g. The payment for office rent was for 13 months, including January 2016.
Required:
1. Prepare a correct statement of earnings for 2015 based on the information above. Show your computations for any amounts changed from those in the statement prepared by Kelsey.
2. Write a memo to support your schedule prepared in (1). The purpose should be to explain the reasons for your changes and to suggest other important items that should be considered in the pricing decision.

Transcribed Image Text:

BRISSETTE STRESS REDUCTION Statement of Earnings 2015 $130,000 Therapy fees collected Expenses paid: Rent for office space Utilities expense Telephone expense Office salaries expense Office supplies expense Miscelaneous expenses Total expenses $19,500 360 2,200 23,500 900 1.400 47,860 S 82.140 Net eamings