Question
Exercise 2-18 (Algo) Cash versus accrual accounting [LO2-9] Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company
Exercise 2-18 (Algo) Cash versus accrual accounting [LO2-9]
Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $190,000 from a local bank, and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2021, the following cash flows were recorded:
Cash collected for: Services to customers | $ | 410,000 | |||
Cash paid for: | |||||
Salaries | $ | 189,000 | |||
Supplies | 34,000 | ||||
Rent | 18,000 | ||||
Insurance | 8,000 | ||||
Miscellaneous | 29,000 | 278,000 | |||
Net operating cash flow | $ | 132,000 | |||
You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities:
January 1, 2021 | December 31, 2021 | |||||
Accounts receivable | $ | 30,000 | $ | 26,000 | ||
Prepaid insurance | 0 | 2,900 | ||||
Supplies | 1,900 | 3,000 | ||||
Accrued liabilities (for miscellaneous expenses) | 3,300 | 4,600 | ||||
In addition, you learn that the bank loan was dated September 30, 2021, with principal and interest at 6% due in one year. Depreciation on the companys equipment is $19,000 for the year. Required: Prepare an accrual basis income statement for 2021. (Ignore income taxes.)
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