## Question

###### Exercise 2-18 (Algo) Cash versus accrual accounting (LO2-9) Stanley and Jones Lawn Service Company (S&J) maintains...

Exercise 2-18 (Algo) Cash versus accrual accounting (LO2-9) Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $160,000 from a local bank, and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2021, the following cash flows were recorded: $380,000 Cash collected for: Services to customers Cash paid for: Salaries Supplies Rent Insurance Miscellaneous Net operating cash flow $186,000 31,000 15,000 12,000 26,000 270,000 $110,000 You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities: January 1, 2021 December 31, 2021 Accounts receivable $38.000 $30,000 Prepaid insurance 2,600 Supplies Accrued liabilities (for miscellaneous expenses) 3,000 4,000 1,800 In addition, you learn that the bank loan was dated September 30, 2021, with principal and interest at 6% due in one year. Depreciation on the company's equipment is $16,000 for the year.

In addition, you learn that the bank loan was dated September 30, 2021, with year. Depreciation on the company's equipment is $16,000 for the year. Required: Prepare an accrual basis income statement for 2021. (Ignore income taxes.) STANLEY AND JONES LAWN SERVICE COMPANY Income Statement For the Year Ended December 31, 2021 Sales revenue Operating expenses: Salaries expense Supplies expense - Rent expense Insurance expense Miscellaneous expense Depreciation expense Total operating expenses Operating income Other expense: Interest expense Net income

## Answers

Here information about accounts receivable, prepaid expenses and accrued liabilities are solved.

Income statement : Service revenue (380,000 + 30,000 -38,000) $372,000 Operating expense :- Salaries expenses $ 186,000 Supplies (31,000 +1,600 -1,800) $30, 800 Rent expenses $15,000 Insurance (12,000 +0-2600) $9,400 Misc. expense (26,000+4,000- 3,000) $ 27,000 Depriciation $ 16,000 Total Expenses $ 284,200 operating income $ 87, 800 ($372000 E-$284200 other expense : Interest ($ 160,000 X6% X 3/12) $2,400 Net income $ 85,400 ($87,800- $2,400)$ 380,000 cash collected less $6,000 decrease in accounts recevable cash Accounts receivable (decrease in account) Sales revenue (to balance) $ 380,000 $8,000 $372,000 $200 Increase in supplies (2) $31,000 Cash paid for purchase of supplies less Supplies expense (to balance) $30,800 $ 200 $ 31,000 Supplies (increase in account Cash (3) $12,000 cash paid for insurance less $2,600 ending balance in prepaid msurance Insurance expense (to balance) Prepaid insurance (increase in account) $ 9,400 $2,600 $12,000 Cash 1 $ 26,000 cash paid for miscellaneous expenses plus increase in accured liabikties Miscellaneous expense (to balance) $27,000 | Accurred liabilities (increase in account | $1,000 Cash $26,000 $ 160,000 X 67 X 3/12 = $2,400 Interest expense $2,400 Interest payable $2,400

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