Period 1

Archie Smith started and operated a small boat repair service during 2015. He is interested in obtaining a $150,000 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 in information stored in a large filing cabinet.

Archies Boats Income Statement 2015
Service Fees Collected in 2015		$55,000
Cash Dividend Received		10,000
Total		65,000
Expenses for Operations Paid in 2015	$22,000
Cash Stolen	500
New Tools Purchased in 2015	1,000
Supplies purchased	3,200
Total		26,700
Profit		$38,300
Asset Owned at the End of 2015
Cash in Checking Account		$29,300
Building (at current market value)		32,000
Tools and Equipment		18,000
Land (at current market value)		30,000
Stock in X Industrial		130,000
Total		$239,300

The following is a summary of completed transactions:

a. Received the following contributions (at fair value) to the business from the owner when the business 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 & Equipment	17,000	Cash	1,000

b. Earned service fees during 2015 of $87,000; of cash collected, $5,000 was for deposits from customers on work to be done by Archie in the next year

c.Received the cash dividends on shares of X Industrial stock purchased by Archie six years earlier (the stock was not owned by the company).

d.Incurred expenses during 2015 of $61,000

e.The amount of supplies on hand (unused) at the end of 2015 is $700

Required:

1. Did Archie prepare the income statement on a cash basis or an accrual basis? Explain how you can tell. Which basis should be used and why?

2.Reconstruct journal entries for a e above under accrual accounting principles.

3.Prepare an accrual-based income statement.

4.Prepare the Asset Section of the balance sheet at the end of 2015.

5.Would you approve a loan for Archie? Explain why or why not.