(2 pts) Accrual basis vs. basis – revenue and expenserecognition: Suppose Capaldi Corp. provides travelservices to customers and noted the following transactions for May2018:
Transaction: | Accrual basis revenue / (expense): | Cash basis revenue / (expense): |
Provided services to customers for $2,920 in cash. | | |
Paid $6,000 in cash for June’s rent. | | |
Received $3,900 in cash from customers for services to beprovided in June. | | |
Received bill from insurance company for May’s monthly premiumof $2,000. Cash payment will be made on June 7th. | | |
Paid $600 in cash for utilities used in May. | | |
Paid workers $9,100 in cash for work performed in April. | | |
Received $8,100 in cash from customers for services provided inApril on account. | | |
Issued common stock for $10,000 in cash. | | |
Provided services to customers for $5,900 on account. Cashcollections related to these services will not be received fromcustomers until June. | | |
For each transaction, determine the amount of revenue or(expense), if any, that is recorded under accrual-basis accountingand under cash-basis accounting for May 2018. I have completedtransaction a. for you as an example.
(2 pts) Accrual Based Accounting: Prepaid expenses –Depreciation of Fixed Assets. Moving On, Inc. purchases anew moving truck (e.g. ‘equipment’) for $56,000 on October1st, 2017. At the time of its purchase, the truck isexpected to be used in operations for 4 years and will have noresale or scrap value at the end of its life. Assume Moving On,Inc. uses straight-line depreciation (i.e. the asset depreciatesevenly) over the expected life of the truck.
Record the journal entry for the original purchase of the truckthat occurs on October 1st, 2017.
Record the adjusting entry to recognize Depreciation Expense onDecember 31, 2017.
What will the ending balance of the Accumulated Depreciationaccount be on December 31, 2018 (Assume the beginning balance ofAccumulated Depreciation on January 1st, 2017 is $0 andMoving On, Inc. has no other assets that depreciate)?
What will the net book value of the truck be on December 31,2018?
(2 pts) Accrual Based Accounting: Deferred (unearned)revenues. Suppose that on November 29th, 2017 acustomer pays Ood Sphere, Ltd. $2,000 cash in advance formerchandise which will be delivered to the customer on December5th.
Record the journal entry for the original purchase of themerchandise that occurs on November 29th, 2017.
Record the adjusting entry Ood Sphere, Ltd. should record onDecember 5th to recognize sales revenue.
Suppose the cost of the merchandise sold (i.e. COGS) is $1,600.When should Ood Sphere, Ltd. record this expense? Why? Brieflyexplain your answer.
