Income Statement Preparation At the request of its local bank, Spotfree Cleaners is attempting to prepare an income statement for 2000 using correct financial reporting methods. The following list of transactions was developed by carefully examining the company records and looking at a variety of receipts and vouchers:

1. Cash received from customers totaled $397,000. Of this total, $42,000 represented payments on commercial work that had been completed and billed in 1999. At the end of 2000, $23,000 of additional billings had been mailed, but payment had not yet been received.

2. Salary expense is recorded at the time of payment. To date, salary payments of $115,000 have been made during 2000. An additional $9,000 of salary was earned by employees between the date of the last payment and the end of the year.

3. Cleaning solvent costing $45,000 was received and paid for in 1999 but was used in 2000. Cleaning solvent costing $75,000 was purchased during 2000. A total of 80 percent of this solvent was used up before the end of the year.

4. On January 1, 2000, $48,000 was paid for professional liability insurance to cover a three-year period beginning with the date of payment.

5. The company borrowed $100,000 from a local bank at the beginning of 1999. At the end of 2000, Spotfree Cleaners repaid the loan and $12,000 of interest for the two-year period.

6. The company decided to initiate a new advertising campaign focusing on college students and paid $8,000 for ads to be run in the local campus newspaper during the last four weeks of 2000 and the first four weeks of 2001.

Spotfree Cleaners is requesting an additional bank loan, and, as their bank loan officer, you have been trying to make sense out of their income information.

a. For each income or expense item listed, determine the amount that should be reported in 2000. poe your treatment of each item.

b. Prepare an income statement for Spotfree Cleaners for 2000.

c. Based on the limited information available, what is your assessment of Spotfree’s ability to repay the loan?