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Gee Enterprises records all transactions on the cash basis Greg Gee company accountant prepared the following income statement at the end of the company’s first year of operations

Gee Enterprises records all transactions on the cash basis. Greg Gee, company accountant, prepared the following income statement at the end of the company’s first year of operations:

Gee Enterprises
Income Statement
For the Year Ended December 31, 2008

Sales                   

 

$252,000

Selling and administrative expenses:

 

 

Salaries expense        

$78,000

 

Rent expense          

45,000

 

Utilities expense        

29,000

 

Equipment             

30,000

 

Commission expense     

37,800

 

Insurance expense       

6,000

 

Interest expense        

3,000

228,800

Net income              

 

$ 23,200

You have been asked to prepare an income statement on the accrual basis. The following information is given to you to assist in the preparation:

(a) Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected.

(b) Salaries of $11,000 for December 2008 were paid on January 5, 2009. Ignore payroll taxes.

(c) Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2008.

(d) The bill for December’s utility costs of $2,700 was paid January 10, 2009.

(e) Equipment of $30,000 was purchased on January 1, 2008. The expected life is five years, no salvage value. Assume straight-line depreciation.

(f) Commissions of 15% of sales are paid on the same day cash is received from customers.

(g) A 1-year insurance policy was issued on company assets on July 1, 2008. Premiums are paid annually in advance.

(h) Gee borrowed $50,000 for one year on May 1,2008.Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2008.

(i) The income tax rate is 40%. No prepayments of income taxes were made during 2008.

Instructions:

1. Prepare adjusting entries to convert the books from a cash to an accrual basis.

2. Prepare the income statement for the year ended December 31, 2008, based on the entries in (1).

May 14 2020 View more View Less

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