Question
Near the end of its first year of operations, December 31, 2021,SheridanDesigns Ltd. approached the local bank for a $21,000loan and was asked to submit
Near the end of its first year of operations, December 31, 2021,SheridanDesigns Ltd. approached the local bank for a $21,000loan and was asked to submit financial statements prepared on an accrual basis. Although the company kept no formal accounting records, it did maintain a record of cash receipts and payments. The following information is available for the year ended December 31:
Cash ReceiptsCash PaymentsIssue of common shares$19,800Fees earned153,200Equipment$35,100Supplies8,700Rent19,230Insurance3,840Income tax6,300Advertising7,300Salaries58,800Dividends declared
9,300$173,000$148,570
Additional information:
1.Fees from design work earned but not yet collected amounted to $2,200.2.The equipment was purchased at the beginning of January and has an estimated six-year useful life. The company uses straight-line depreciation.3.Supplies on hand on December 31 were $1,220.4.Rent payments included a $1,450per month rental fee and a $1,830deposit that is refundable at the end of the two-year lease. (Hint: Use the Prepaid Rent account for the refundable deposit.)5.The insurance was purchased on February 1 for a one-year period expiring January 31, 2022.6.Salaries earned for the last four days in December and to be paid in January 2022 amounted to $2,740.7.At year end, it was determined that an additional $6,900is owed for income tax.
(a)
Calculate total revenue, total expense, and net income that would be reported ifSheridanDesigns used the cash basis of accounting.
Total revenue$Total expense$Cash-based net income$
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