Darya McNeil owns and operates Daryas Day Spa. She has decided to sell the business and retire. She has had discussions with a representative from a regional chain of day spas. The discussions are at the complex stage of agreeing on a price. Among the important factors have been the financial statements of the business. Each year they develop a statement of profits on a cash basis; no balance sheet was prepared. Darya provided the other company with the following statement for 2018:

Daryas Day Spa Income Statement for 2018
Spa Fees Collected		$1,215,000
Expenses paid:
Rent for Office Space	$130,000
Utility Expense	43,600
Telephone Expense	12,200
Salaries Expense	532,000
Supplies Expense	61,900
Miscellaneous Expenses	12,400
Total Expenses		792,100
Profit for 2018		$422,900

You have been asked to examine the financial figures for 2018. The other companys representative 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, 2018.

Of the $1,215,000 in total spa fees collected in 2018, $142,000 was for services performed in 2017.

At the end of 2018, spa fees of $89,000 for services performed during the year were on account and should be collected in 2019.

Office equipment owned and used by Darya cost $205,000. Depreciation was estimated at $20,500 annually.

A count of supplies on December 31, 2018, reflected $5,200 worth of items purchased during the year that were still on hand. Also, the records for 2017 indicated that the supplies on hand at the end of 2017 were $3,125.

At the end of 2018, the secretary whose salary is $4,000 per month had not been paid for December because of a long trip that extended into January, 2019.

The December 2018 telephone bill for $1,400 has not been recorded or paid. In addition, the $12,200 amount on the statement of profits includes payment of the December 2017 bill of $1,800 in January 2018.

The $130,000 office rent paid was for 13 months (it included the rent for January 2019).

Required

Complete journal entries for a g above.

Prepare a corrected income statement for 2018 (ignore income taxes).

Write a memo highlighting important items that should be considered in the pricing decision.