$ 120,000 Brown Company Income Statement For the Month Ended April 30, 20X0 Sales revenue Deduct expenses Cost of goods sold Wages and commissions expense Rent expense Depreciation $ 40,000 40,000 18,900 1,500 100,400 $ Net income (loss) 19,600 a. The company was incorporated. Common stockholders invested $400,000 cash. b. Purchased merchandise inventory for cash, $30,000. c. Purchased merchandise inventory on open account, $15,000. d. Merchandise carried in inventory at a cost of $40,000 was sold for cash for $57,000 and on open account for $63,000, for a grand total of $120,000. Brown (not The High St. Common) carries and collects these accounts receivable. e. Collection of accounts receivable, 529,000. See transaction (d). f. Payments of accounts payable $12,000. See transaction (c). g. Special display equipment and fixtures were acquired on April 1 for $72,000. Their expected useful life was 48 months. This equipment was removable. Brown paid $25,000 as a down payment and signed a promissory note for $47,000. Also see transaction (k). h. On April 1, Brown signed a rental agreement with The High St. Common. The agreement called for a flat $900 per month, payable quarterly in advance. Therefore, Brown paid $2,700 cash on April 1. i. The rental agreement also called for a payment of 15% of all sales. This payment was in addition to the flat $900 per month. In this way, The High St. Common would share in any success of the venture and be compensated for general services such as cleaning and utilities. This payment was to be made in cash on the last day of each month as soon as the sales for the month had been tabulated. Therefore, Brown made the payment on April 30. j. Employee wages and sales commissions were all paid for in cash. The amount was $40,000. k. Depreciation expense of $1,500 was recognized ($72,000/48 months). See transaction (9). 1. The expiration of an appropriate amount of prepaid rental services was recognized. See transaction (h). Assets Merch Prepaid Rent Equip + and Fixt. Liabilities + Stockholders' Equity Paid-in Retained A/P + Capital + Earnings 400,000 Cash + A/R + Inv. + N/P + a. 400,000 (30,000) b 30,000 15,000 C. = 15,000 d1. 57,000 + 63,000 120,000 (40,000) d2 (40,000) e. (29,000) f. (12,000) g + 72,000 47,000 29,000 + (12,000) (25,000) (2.700) (18,000) (40,000) h. 2,700 i. i (18,000) (40,000) (1,500) (900) k. (1,500) I. (900) 358,300 34,000 5,000 1,800 70,500 47,000 3,000 400,000 Bal 19,600 + 11 + Requirement 1. Suppose Brown measured performance on the cash basis instead of on the accrual basis. Compute the cash receipts, cash disbursements, and net cash inflow (outflow) for April by completing a cash-basis income statement. (Leave any unused cells blank. Use a minus sign or parentheses for a net cash outflow.) Brown Company Income Statement - Cash Basis For the Month Ended April 30, 20X0 Operating cash receipts Total operating cash receipts Deduct operating cash disbursements Total operating cash disbursements Net cash inflow (outflow) from operations Requirement 2. Which measure, accrual-based net income or net cash inflows outflows), provides a better measure of accomplishment? Why? The accrual basis, which records revenue when earned and realized provides a better measure of revenue. Users of the financial statements believe that this method provides the best framework for relating accomplishments (revenues) with efforts (expenses) and therefore, provides the more proper measure of economic accomlishment