Question

Please prepare an accrual basis income statement for 2021

Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $260,000 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: $ 480,000 Cash collected for: Services to customers Cash paid for: Salaries Supplies Rent Insurance Miscellaneous Net operating cash flow $196,000 41,000 25,000 8,000 36,000 306,000 $174,000 You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities: January 1, 2021 $37,000 Accounts receivable Prepaid insurance Supplies Accrued liabilities (for miscellaneous expenses) December 31, 2021 $29,500 3,600 3,350 2,600 4,000 6,000 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 $15,000 for the year.

Answer 1

Service revenue = Cash collected from customer - Accounts receivable, beginning + Accounts receivable, ending

= 480,000 - 37,000 + 29,500

= $472,500

Insurance expense = Cash paid for insurance + Prepaid insurance, beginning - Prepaid insurance, ending

= 8,000 + 0 - 3,600

= $4,400

Supplies expense = Supplies, beginning + Supplies purchased - Supplies, Ending

= 2,600 + 41,000 - 3,350

= $40,250

Interest expense = 260,000 x 6%

= $15,600

Miscellaneous expense = Cash paid for miscellaneous expense - Accrued miscellaneous expense, beginning + Accrued miscellaneous expense, ending

= 36,000 - 4,000 + 6,000

= $38,000

Income statement

For the year ended December 31, 2021

Service revenue		472,500
Operating expenses :
Insurance expense	4,400
Supplies expense	40,250
Miscellaneous expense	38,000
Salaries	196,000
Rent	25,000
Depreciation	15,000
Total operating expenses		-318,650
Operating income		153,850
Other expense :
Interest expense		-15,600
Net income		$138,250

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Answer 2

Shouldnt the interest expense be 3900?