Robert Brissette, a local massage therapist, decided to sell his practice and retire. He has had discussions

Question:

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 Brissette's practice, Brissette Stress Reduction, played an important role in this process. Brissette's secretary, Kelsey, maintained the records, under his direction. Each year, Kelsey developed a statement of profit on a cash basis from the records she maintained but she did not prepare a statement of financial position. Upon request, Brissette provided the other therapist with the following statements for 2012 prepared by Kelsey: image text in transcribed

Upon agreement of the parties, you have been asked to examine the financial figures for 2012. The other therapist said, "I 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, 2012:

a. Of the $\$ 130,000$ in therapy fees collected in $2012, \$ 30,000$ was for services performed prior to 2012.

b. At the end of 2012 , therapy fees of $\$ 6,000$ for services performed during the year were uncollected.

c. Office equipment owned and used by Brissette cost $\$ 8,000$ and had an estimated useful life of 10 years, with no salvage value.

d. An inventory of office supplies at December 31,2012 , reflected $\$ 400$ worth of items purchased during the year that were still on hand. Also, the records for 2011 indicate that the supplies on hand at the end of that year were about $\$ 250$.

e. At the end of 2012 , the secretary whose salary is $\$ 24,000$ per year had not been paid for December because of a long trip that extended to January $15,2013$.

f. The $\$ 140$ phone bill for December 2012 was not paid until January $11,2013$.
g. The payment for office rent was for 13 months, including January 2013.
Required:
1. Prepare a correct income statement for 2012 based on the information above. Show your computations for any amounts changed from those in the statement prepared by Brissette's secretary. (Suggested solution format-use four-column headings: Items; Cash Basis per Brissette's Statement, \$; Explanation of Changes; and Corrected Basis, \$.)
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.