Jill Zimmer wants to evaluate the success of her restaurant, Planet Broadway. She has assembled the following 2000 data:

1. Wages were $270,000, paid in cash.

2. Collections from customers were $675,000. (Assume that half the customers paid their bills by year-end).

3. A $5,000 deposit for a future wedding reception is included in these collections.

4. Insurance expense was $3,500, paid in cash.

5. Rental expense was $120,000, paid half in cash and half in promissory notes due in 2001.

6. Food costs were $85,000, paid in cash.

7. Advertising bills of $13,000 were paid; however, Jill had only agreed to pay

$1,000 each month under her contract with the advertising firm. The extra

$1,000 payment pertained to 1999.

8. Interest revenues were $350, collected in cash.

9. Cab fares (for inebriated customers) were $875.

10. Jill’s salary was $10,000 per month, but due to concerns about cash flow, she was only paid $5,000 each month.

11. The income tax rate is 28% of income before taxes.

Required

a. Prepare a single-step income statement, using the accrual basis of accounting.

b. Prepare a similar income statement, using the cash basis of accounting.

c. Discuss the differences between these two statements.

d. What managerial concerns might Jill have upon seeing your income statement?

e. What additional items usually appear in such an income statement for a small business?

f. Which costs do you feel are high, relative to Jill’s volume of business?

g. On which costs should she concentrate most in order to improve her profitability?

h. What else could she do to improve her net income?