Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Period 2 Quiz Darya McNeil owns and operates Darya's Day Spa.She has decided to sell the business and retire.She has had discussions with a representative

Period 2 Quiz 


Darya McNeil owns and operates Darya's 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 2015:


Darya's Day Spa

Income Statement for 2015

Spa Fees Collected

$1,215,000

Expenses paid:

Rent for Office Space

$130,000

Utility Expense

43,600

Telephone Expense

12,200

Salaries Expense

562,000

Supplies Expense

31,900

Miscellaneous Expenses

12,400

Total Expenses

792,100

Profit for 2015

$422,900

You have been asked to examine the financial figures for 2015. The other company's 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, 2015.


a.     Of the $1,215,000 in spa fees collected in 2015, $142,000 was for services performed prior to 2015.

b.    At the end of 2015, spa fees of $29,000 for services performed during the year were uncollected.

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

d.    A count of suppliers at December 31, 2015, reflected $5,200 worth of items purchased during the year that were still on hand. Also, the records for 2014 indicated that the suppliers on hand at the end of 2014 were $3,125.

e.    At the end of 2015, the secretary whose salary is $48,000 per year had not been paid for December because of a long trip that extended to January 15, 2016.

f.     The December 2015 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 2014 bill of $1,800 in January 2015.

g.    The $130,000 office rent paid was for 13 months (it included the rent for January 2016).


Required


1.    Complete journal entries for a - g above.

2.    Prepare corrected income statement for 2015 (ignore income taxes). 

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: Marshall B. Romney, Paul J. Steinbart

12th edition

132552620, 978-0132552622

More Books

Students also viewed these Accounting questions

Question

Job type Retail sales, managerial, human resources, etc.

Answered: 1 week ago

Question

_____ 3. the top line of a business

Answered: 1 week ago