Kline's Piano Rebuilding Company has been operating for one year (2003). At the start of 2004, its
Question:
Kline's Piano Rebuilding Company has been operating for one year (2003). At the start of 2004, its income statement accounts had zero balances and its balance sheet account balances were as follows:
Required: 1. Create T-accounts for the balance sheet accounts and for these additional accounts: Rebuilding Fees Revenue, Rent Revenue, Wages Expense, and Utilities Expense. Enter the beginning balances. 2. Enter the following January 2004 transactions in the T-accounts, using the letter of each transaction as the reference:
a. Received a $500 deposit from a customer who wanted her piano rebuilt.
b. Rented a part of the building to a bicycle repair shop; received $300 for rent in January.
c. Delivered five rebuilt pianos to customers who paid $14,500 in cash.
d. Received $6,000 from customers as payment on their accounts.
e. Received an electric and gas utility bill for $350 to be paid in February.
/. Ordered $800 in supplies.
g. Paid $ 1 ,700 on account in January.
h. Received from the home of Ms. Kline, the major shareholder, a $600 tool (equipment) to use in the business.
i. Paid $10,000 in wages to employees in January.
j. Declared and paid a $3,000 dividend.
k. Received and paid cash for the supplies in (/). 3. Using the data from the T-accounts, amounts for the following on January 31, 2004, were Revenues, $ - Expenses, $ = Net Income, $
Assets, $ = Liabilities, $ + Stockholders' Equity, $ 4. What is net income if Kline used the cash basis of accounting? Why does this differ from accrual basis net income (in requirement 3)?
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