Question

Exercise 4-13

The income statement of Sheridan Company for the month of July shows net income of $3,480 based on Service Revenue $7,890, Salaries and Wages Expense $2,860, Supplies Expense $940, and Utilities Expense $610. In reviewing the statement, you discover the following:

1.		Insurance expired during July of $470 was omitted.
2.		Supplies expense includes $410 of supplies that are still on hand at July 31.
3.		Depreciation on equipment of $150 was omitted.
4.		Accrued but unpaid wages at July 31 of $320 were not included.
5.		Services performed but unrecorded totaled $640.

Prepare a correct income statement for July 2017.

Answer 1

Midland Co.
Income statement
For the month ended july 31,2017
Revenues:
Service revenue	$8,530
Expenses:
Wages expense	$3,180
Supplies expense	$530
Utilities expense	$610
Insurance Expense	$470
Depreciation Expense	$150
Total Expense	$4,940
Net income	$3,590

Explanation:

To prepare an income statement, all expenses are deducted from the revenue.

1. here, since, insurance expense of $470 was omitted to be recorded, it shall be now recorded.

2. Supplies shall be deducted by the amount of supplies still at hand, as they are not used, therefore, cannot be expensed for the period.

3. Depreciation on equipment of $150 is an expense which was omitted and therefore, should be recorded.

4. Accrued wages of $320 are a part of the income statement of this period because, the wages relate to that period. Whether they are paid or are pending is irrelavant because we follow accrual accounting. Hence, they should be added.

5. Services performed is a part of the Revenue, and therefore, it should be added to the revenue.