2. Reconstruct the correct entries under accrual accounting principles and post the effects to T-accounts.
3. Prepare an accrual-based income statement, statement of stockholder's equity (only one shareholder), and a classified balance sheet. Explain (using footnotes) the reason for each change that you make to the income statement.
4. What additional information would assist you in formulating your decision regarding the loan to Julio?
Julio Estela started a small boat repair service company during the current year. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers in the winter months. At the end of the year, he prepared the following statements based on information stored in a large filing cabinet: a ESTELA COMPANY Profit for the Current Year Service fees collected in cash during the current year Cash dividends received Total $ 55,000 10,000 65.000 500 26,700 Expense for operations paid during the current year $22.000 Cash stolen New tools purchased during the current year (cash paid) 1.000 Supplies purchased for use on service jobs (cash paid) 3.200 Total Profit Assets Owned at the End of the Current Year Cash in checking account Building (at current market value) Tools and equipment Land (at current market value) Stock in ABC Industrial Total $ 38,300 $ 29,300 32,000 18,000 30.000 130,000 $239,300 The following is a summary of completed transactions: Page 165 a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: Building $21,000 Land $20,000 Tools and equipment 17,000 Cash 1,000 b. Earned service fees during the current year of $87,000; of the cash collected, $20,000 was for deposits from customers on work to be done by Julio in the next year. c. Received the cash dividends on shares of ABC Industrial stock purchased by Julio Estela six years earlier (the stock was not owned by the company). d. Incurred operating expenses during the current year of $61,000. e. Determined amount of supplies on hand (unused) at the end of the current year as $700. Julio Estela started a small boat repair service company during the current year. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers in the winter months. At the end of the year, he prepared the following statements based on information stored in a large filing cabinet: a ESTELA COMPANY Profit for the Current Year Service fees collected in cash during the current year Cash dividends received Total $ 55,000 10,000 65.000 500 26,700 Expense for operations paid during the current year $22.000 Cash stolen New tools purchased during the current year (cash paid) 1.000 Supplies purchased for use on service jobs (cash paid) 3.200 Total Profit Assets Owned at the End of the Current Year Cash in checking account Building (at current market value) Tools and equipment Land (at current market value) Stock in ABC Industrial Total $ 38,300 $ 29,300 32,000 18,000 30.000 130,000 $239,300 The following is a summary of completed transactions: Page 165 a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: Building $21,000 Land $20,000 Tools and equipment 17,000 Cash 1,000 b. Earned service fees during the current year of $87,000; of the cash collected, $20,000 was for deposits from customers on work to be done by Julio in the next year. c. Received the cash dividends on shares of ABC Industrial stock purchased by Julio Estela six years earlier (the stock was not owned by the company). d. Incurred operating expenses during the current year of $61,000. e. Determined amount of supplies on hand (unused) at the end of the current year as $700
