B ALANCE S HEET INCOME S TATEMENT Assets Liabilities Owners Equity Revenues

B alance s heet income s tatement assets liabilities

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To record payment of 2004 property taxes on June 1. B ALANCE S HEET INCOME S TATEMENT Assets = Liabilities + Owners' Equity + Revenues Expenses 2005 6/1 Cash (52,500) Property Taxes Payable (52,500)
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CHAPTER 4 INCOME MEASUREMENT AND ACCRUAL ACCOUNTING 4-15 LO 5 EXERCISE 4-13 INTEREST RECEIVABLE 1. To record 10%, 60-day loan to MaxiDriver, Inc. on June 1. B ALANCE S HEET INCOME S TATEMENT Assets = Liabilities + Owners' Equity + Revenues Expenses 6/1 Cash (60,000) Note Re- ceivable 60,000 2. To accrue interest due on note for one month on June 30. B ALANCE S HEET INCOME S TATEMENT Assets = Liabilities + Owners' Equity + Revenues Expenses 6/30 Interest Interest Receivable 500 Income 500 (60,000 X .10 X 30/360) 3. To record collection of note and interest at maturity date on July 31. B ALANCE S HEET INCOME S TATEMENT Assets = Liabilities + Owners' Equity + Revenues Expenses 7/31 Cash 61,000 Interest Income 500 Note Receivable (60,000) Interest Receivable (500) LO 5 EXERCISE 4-14 UNBILLED ACCOUNTS RECEIVABLE
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4-16 FINANCIAL ACCOUNTING SOLUTIONS MANUAL LO 5 EXERCISE 4-15 THE EFFECT OF IGNORING ADJUSTMENTS ON NET INCOME 1. O 4. O 2. U 5. O 3. O 6. U LO 5 EXERCISE 4-16 THE EFFECT OF ADJUSTMENTS ON THE ACCOUNTING EQUATION Assets = Liabilities + Owners' Equity 1. D NE D 2. NE I D 3. D NE D 4. NE D I 5. I NE I 6. NE I D LO 6 EXERCISE 4-17 THE ACCOUNTING CYCLE Order in the accounting cycle: 4, 7, 1, 5, 3, 6, 2 MULTI-CONCEPT EXERCISES LO 1,2,3 EXERCISE 4-18 REVENUE RECOGNITION, CASH AND ACCRUAL BASIS 1. Accrual basis income statements: HATHAWAY HEALTH CLUB INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31 Year 1 Year 2 Year 3 Sales*$ 122,000 $152,000 $182,000 Expenses: Depreciation** $ 33,000 $ 33,000 $ 33,000 Salaries and wages 50,000 50,000 50,000 Advertising 5,000 5,000 5,000 Rent and utilities 36,000 36,000 36,000 Total expenses $ 124,000 $ 124,000 $ 124,000 Net income (loss) $ (2,000 ) $ 28,000 $ 58,000 * Year 1: $366,000/3 = $122,000 with a three year membership; only one- third of the total recognized.
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CHAPTER 4 INCOME MEASUREMENT AND ACCRUAL ACCOUNTING 4-17 LO 1,2,3 EXERCISE 4-19 THE EFFECT OF THE PERCENTAGE-OF-COMPLETION METHOD ON FINANCIAL STATEMENTS 1. Income Recognized Under Year Percentage-of-Completion Basis Cash Basis 1 (1,200,000/2,400,000*) 2,000,000 – X 1,600,000** $ 800,000 1,200,000 $ 800,000 2 (600,000/2,400,000) X 1,600,000 $ 400,000 0 – 600,000 (600,000) 3
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