[Solved] Test

Assignment Prompt & Instructions

Accrual – ## AFMUTSWord.docx **## AFMUTSWord.docx** | | | | | | — | — | — | — | | Budi started a small boat repair service company during the current year. <br>He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers. <br>At the end of the year, he prepared the following statements based on information stored in a large filing cabinet | | | | | | | | | | | | **BUDI COMPANY**<br>**Profit for the Current Year** | | Service fees collected in cash during the current year | 55 | | | | Cash dividends received | 10000 | | | | **Total** | **65000** | | | | Expense for operations paid during the current year | 22 | | | | Cash stolen | 500 | | | | New tools purchased during the current year (cash paid) | 1000 | | | | Supplies purchased for use on service jobs (cash paid) | 3200 | | | | **Total** | **26700** | | | | **Profit** | **38300** | | | | | | | | | **BUDI COMPANY**<br>**Assets Owned at the End of the Current Year** | | | | Cash in checking account | 29300 | | | | Building (at current market value) | 32000 | | | | Tools and equipment | 18000 | | | | Land (at current market value) | 30000 | | | | Stock in ABC Industrial | 130000 | | | | **Total** | **239300** | | | | | | | | | The following is a summary of completed transactions: | | | | | a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: | | | | Building 21000 | Land 20000 | | | | Tools and equipment 17000 | Cash 1000 | | | | | | | | | b. Earned service fees during the current year of 87000; of the cash collected 20000 was for deposits from customers on work to be done by Budi in the next year. | | | | c. We received the cash dividends on shares of ABC Industrial stock purchased by Budi six years earlier (the stock was not owned by the company). | | | | d. He incurred operating expenses during the current year of 61000 | | | | e. Determined amount of supplies on hand (unused) at the end of the current year as 700 | | | | f. A temporary employee subsequently fired, stole 500 cash from the business. There was no insurance coverage for theft | | | | | | | | | g. We have purchased tools and equipment during the year | | | | | | | | | Required: | | | | | 1. Did Budi prepare the income statement on a cash basis or an accrual basis? Explain how you can tell Which basis should be used? Explain why! | | | | 2. Reconstruct the correct entries under accrual accounting principles and post the effects to T accounts | | | | 3. Prepare an accrual-based income statement a statement of stockholder's equity (only for one shareholder) and a classified balance sheet. Explain (using footnotes) the reason each change that you make to the income statement | | | | 4. What additional information would assist you in formulating your decision regarding the loan to Budi? | | | **## AFMUTSWord.docx** | | | | | | — | — | — | — | | Budi started a small boat repair service company during the current year. <br>He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers. <br>At the end of the year, he prepared the following statements based on information stored in a large filing cabinet | | | | | | | | | | | | **BUDI COMPANY**<br>**Profit for the Current Year** | | Service fees collected in cash during the current year | 55 | | | | Cash dividends received | 10000 | | | | **Total** | **65000** | | | | Expense for operations paid during the current year | 22 | | | | Cash stolen | 500 | | | | New tools purchased during the current year (cash paid) | 1000 | | | | Supplies purchased for use on service jobs (cash paid) | 3200 | | | | **Total** | **26700** | | | | **Profit** | **38300** | | | | | | | | | **BUDI COMPANY**<br>**Assets Owned at the End of the Current Year** | | | | Cash in checking account | 29300 | | | | Building (at current market value) | 32000 | | | | Tools and equipment | 18000 | | | | Land (at current market value) | 30000 | | | | Stock in ABC Industrial | 130000 | | | | **Total** | **239300** | | | | | | | | | The following is a summary of completed transactions: | | | | | a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: | | | | Building 21000 | Land 20000 | | | | Tools and equipment 17000 | Cash 1000 | | | | | | | | | b. Earned service fees during the current year of 87000; of the cash collected 20000 was for deposits from customers on work to be done by Budi in the next year. | | | | c. We received the cash dividends on shares of ABC Industrial stock purchased by Budi six years earlier (the stock was not owned by the company). | | | | d. He incurred operating expenses during the current year of 61000 | | | | e. Determined amount of supplies on hand (unused) at the end of the current year as 700 | | | | f. A temporary employee subsequently fired, stole 500 cash from the business. There was no insurance coverage for theft | | | | | | | | | g. We have purchased tools and equipment during the year | | | | | | | | | Required: | | | | | 1. Did Budi prepare the income statement on a cash basis or an accrual basis? Explain how you can tell Which basis should be used? Explain why! | | | | 2. Reconstruct the correct entries under accrual accounting principles and post the effects to T accounts | | | | 3. Prepare an accrual-based income statement a statement of stockholder's equity (only for one shareholder) and a classified balance sheet. Explain (using footnotes) the reason each change that you make to the income statement | | | | 4. What additional information would assist you in formulating your decision regarding the loan to Budi? | | |