QUESTION 36

1. Accrual Accounting: Scroll down to complete all parts of this task. The following information pertains to Baron Flowers, a calendar-year sole proprietorship, which maintained its books on the cash basis during the year. Baron has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is reuesting year 4 financial statements prepared on the accrual basis of accounting from Baron. During the course of a review engagement, Muir, Baron's accountant, obtained the following additional information.
   1. Amounts due from customers totaled $32,000 at December 31, year 4.
   2. An analysis of the receivables in item 1 revealed that an allowance for uncollectible accounts of $3,800 should be provided.
   3. Unpaid invoices for flower purchases totaled $30,500 and $17,000, at December 31, year 4, and December 31, year 3, respectively.
   4. The inventory totaled $72,800 based on a physical count of the goods at December 31. The inventory was priced at cost, which approximates market value.
   5. On May 1, year 4, Baron paid $8,700 to renew its comprehensive insurance coverage for one year. The premium on the previous policy, which expires on April 30, year 4, was $7,800.
   6. On January 2, year 4, Baron entered into a 25-year operating lease for the vacant lot adjacent to Baron's retail store for use as a parking lot. As agreed in the lease, Baron paved and fenced in the lot at a cost of $45,000. The improvements were completed on April 1, year 4, and have an estimated useful life of fifteen years. No provision for depreciation or amortization has been recorded. Depreciation on furniture and fixtures was $12,000 for year 4.
   7. Accrued expenses at December 31, year 3 and year 4, were as follows:

      	Year 3	Year 4
      Utilities	$ 900	$ 1,500
      Payroll taxes	1,100	1,600
      	$ 2,000	$ 3,100

   8. Baron is being sued for $400,000. Coverage under the comprehensive insurance policy is limited to $250,000. Baron's attorney believes that an unfavorable outcome is probable and that a reasonable settlement estimate is $300,000.
   9. The salaries account includes $4,000 per month paid to the proprietor. Baron also receives $250 per week for living expenses.

   Using this table, prepare the adjustments necessary to convert the trial balance of Baron Flowers to the accrual basis of accounting for the year ended December 31, year 4. Formal journal entries are not reuired to support your adjustments. Enter all amounts as positive values rounded to the nearest whole dollar.

   	Cash Basis		Adjustments		Accrual Basis*
   Account Title	Debit	Credit	Debit	Credit	Debit*	Credit*
   Cash	25,600				*____
   Accounts receivable, 12/31 Year 3	16,200		[1____]		*____
   Inventory, 12/31 Year 3	62,000		[2____]		*____
   Furniture & fixtures	118,200				*____
   Land improvements	45,000				*____
   Accumulated depreciation & amortization, 12/31 Year 3		32,400		[3____]		*____
   Accounts payable, 12/31 Year 3		17,000		[4____]		*____
   Baron, Drawings			[5____]		*____
   Baron, Capital, 12/31 Year 3		124,600	[6____]	[7____]		*____
   Allowance for uncollectible accounts				[8____]		*____
   Prepaid Insurance			[9____]		*____
   Accrued Expenses				[10___]		*____
   Estimated liability from lawsuit				[11___]		*____
   Sales		653,000		[12___]		*____
   Purchases	305,100		[13___]		*____
   Salaries	174,000			[14___]	*____
   Payroll taxes	12,400		[15___]		*____
   Insurance	8,700			[16___]	*____
   Rent	34,200				*____
   Utilities	12,600		[17___]		*____
   Living expenses	13,000			[18___]
   Uncollectible Account			[19___]		*____
   Income summary inventory			[20___]	[21___]		*____
   Depreciation and amortization			[22___]		*____
   Estimated loss from lawsuit			[23___]		*____
   	$827,000	$827,000	[24____]	[25___]	*____	*____
   * Completion of these columns is not reuired but may be useful in checking your work.

   Note: Please enter your responses below. Find a way to make them correspond with the number within the table and separate them with semicolons. Use the following examples for [1____], [2____], and [3____] as a reference for formulating your responses: Example A: (1)555,000; (2)90,555; (3)1,234; Example B: 1--555,000; 2--90,555; 3--1,234; Example C: 1 = 555,000; 2 = 90,555; 3 = 1,234; Be sure that your answers are clear to your Instructor with whichever method you choose.