Week Two Exercise AssignmentRevenue and Expenses Revenue and Expenses. Dave Morris began a law...

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Week Two Exercise AssignmentRevenue and Expenses 	Revenue and Expenses. Dave Morris began a law practice several years ago, shortly after graduating from law school. During 19X1, he was approached by Delores Silva, who had recently suffered a back injury in an automobile accident. Morris accepted Silva as a client, and in 19X2 proceeded with a lawsuit against Maddox Motors. The suit alleged that Maddox had knowingly sold Silva an automobile with defective brakes. Late in 19X2, the courts awarded Silva $240,000 in damages. Morris was entitled to 40% of this settlement for his fees. In 19X3, Maddox Motors paid Silva and Morris their respective shares of the judgment. Morris incurred secretarial and photocopy charges in 19X2 of $12,000— all related to the Silva case. Of this amount, $8,000 was paid in 19X2 and the balance was paid in 19X3. Assuming that Morris uses the accrual basis of accounting, in what year(s) should the revenue and expense amounts be recognized? Why?     	Accrual and modified cash basis. The following information pertains to Beta Company for October:    	 		 			Services rendered during October to customers on account 			$14,380 		 		 			Cash receipts from 			 		 		 			 Owner investment 			7,000 		 		 			 Customers on account 			5,650 		 		 			 Cash customers for services rendered in October 			6,800 		 		 			Cash payments to 			 		 		 			 Creditors for expenses incurred during October 			4,400 		 		 			 Creditors for expenses incurred prior to October 			2,100 		 		 			 Monroe Equipment for purchase of new machinery on 			 		 		 			 October 1 			8,400 		 		 			Expenses incurred during October, to be paid in future 			 		 		 			months 			3,725 		 	  The machinery is expected to have a service life of five years.InstructionsCalculate Beta's net income for October, using the following methods:  	Accrual basis of accounting. 	Modified cash basis of accounting.     	Accounting for prepaid expenses and unearned revenues. Hawaii-Blue began business on January 1 of the current year and offers deep sea fishing trips to tourists. Tourists pay $125 in advance for an all-day outing off the coast of Maui. The company collected monies during January for 210 outings, with 30 of the tourists not planning to take their trips until early February. Hawaii-Blue rents its fishing boat from Pacific Yacht Supply. An agreement was signed at the beginning of the year, and $72,000 was paid for the rights to use the boat for two full years.    	Prepare journal entries to record (1) the collection of monies from tourists and (2) the revenue generated during January. 	Calculate Hawaii-Blue's total obligation to tourists at the end of January. On what financial statement and in which section would this amount appear?     	Recognition of concepts. Ron Carroll operates a small company that books entertainers for theaters, parties, conventions, and so forth. The company's fiscal year ends on June 30 Consider the items that follow and classify each as either (1) prepaid expense, (2) unearned revenue, (3} accrued expense, (4) accrued revenue, or (5) none of the foregoing.     	Amounts paid on June 30 for a one-year insurance policy. 	Professional fees earned but not billed as of June 30. 	Repairs to the firm's copy machine, incurred and paid in June. 	An advance payment from a client for a performance next month at a convention. 	The payment in item (d) from the client's point of view. 	Interest owed on the company's bank loan, to be paid in early July. 	The bank loan payable in item (f). 	Office supplies on hand at year-end. 	Bank reconciliations: Missing amounts 	The following independent cases relate to bank reconciliations. Compute the missing amounts, assuming that no other reconciling items exist.   	 		 			 Case A 			Case B 			Case C 		 		 			Balance per bank $6,000 			$4,000 			$ ? 		 		 			Outstanding checks $500 			2,100 			1,400 		 		 			Deposits in transit $2,000 			7 			1,000 		 		 			Balance per company records ? 			8,000 			450 		 		 			 			 			 		 	    	Bank reconciliation and entries. The following information was taken from the accounting records of Palmetto Company for the month of January:    	 		 			Balance per bank 			$6,150 		 		 			Balance per company records 			3,580 		 		 			Bank service charge for January 			20 		 		 			Deposits in transit 			940 		 		 			Interest on note collected by bank 			100 		 		 			Note collected by bank 			1,000 		 		 			NSF check returned by the bank with the 			 		 		 			 bank statement 			650 		 		 			Outstanding checks 			3,080 		 		 			 			 		 	     	Prepare Palmetto's January bank reconciliation. 	Prepare any necessary journal entries for Palmetto.     	Allowance method: Income statement and balance sheet approaches. Tempe Company reported accounts receivable of $300,000 and an allowance for uncollectible accounts of $31,000 (credit) on the December 31, 19X2, balance sheet. The following data pertain to 19X3 activities and operations:     	 		 			Sales on account 			$2,000,000 		 		 			Cash collections from credit customers 			1,600,000 		 		 			Sales discounts 			50,000 		 		 			Sales returns & allowances 			100,000 		 		 			Uncollectible accounts written off 			29,000 		 		 			Collections on accounts that were previously written off 			2,700 		 	    Instructions  	Prepare journal entries to record the sales- and receivables-related transactions from 19X3. 	Prepare the December 31, 19X3, adjusting entry for uncollectible accounts assuming that uncollectibles are estimated to be 2% of net credit sales. 	Prepare the December 31, 19X3, adjusting entry for uncollectible accounts assuming that uncollectibles are estimated at 1% of year-end accounts receivable. 	Compute the amount of the adjusting entry in part (c) assuming that $46,000, rather than $29,000, of accounts were written off in 19X3.     	Income Statement Review. Using the annual report of the company that you selected in week 1 please review the company’s income statement over a three year period. Did sales increase during this time? Did Cost of Good Sold increase significantly? Has the company been profitable? Do you notice any positives based on your analysis of the income statement? Are there any negatives that potential investors should be aware of? Write a XXXXXXXXXXsummary of the results of your income statement analysis.

Robert · Accepted Answer

Week Two Exercise Assignment 
Revenue and Expenses 
 Revenue and Expenses. Dave Morris began a law practice several years ago, shortly after 
graduating from law school. During 19X1, he was approached by Delores Silva, who had recently 
suffered a back injury in an automobile accident. Morris accepted Silva as a client, and in 19X2 
proceeded with a lawsuit against Maddox Motors. The suit alleged that Maddox had knowingly 
sold Silva an automobile with defective brakes. Late in 19X2, the courts awarded Silva $240,000 
in damages. Morris was entitled to 40% of this settlement for his fees. In 19X3, Maddox Motors 
paid Silva and Morris their respective shares of the judgment. Morris incurred secretarial and 
photocopy charges in 19X2 of $12,000— all related to the Silva case. Of this amount, $8,000 was 
paid in 19X2 and the balance was paid in 19X3. Assuming that Morris uses the accrual basis of 
accounting, in what year(s) should the revenue and expense amounts be recognized? Why?
Since the court has awarded the damages, Morris becomes entitled to his 40% shares. He has 
already rendered his services, completed the task. Hence the revenue should be recognized in the 
year 19X2.
 Accrual and modified cash basis. The following information pertains to Beta Company for 
October: 
Services rendered during October to customers on account $14,380 
Cash receipts from  
     Owner investment 7,000 
     Customers on account 5,650 
     Cash customers for services rendered in October 6,800 
Cash payments to  
     Creditors for expenses incurred during October 4,400 
     Creditors for expenses incurred prior to October 2,100 
     Monroe Equipment for purchase of new machinery on  
          October 1 8,400 
Expenses incurred during October, to be paid in future  
months 3,725
The machinery is expected to have a service life of five years.
Instructions 
Calculate Beta's net income for October, using the following methods: 
 Accrual basis of accounting. 
Services rendered on Account    $14,380 
Services rendered on Cash    $ 6,800 
  Total Service revenue    $21,180 
 Expenses incurred and paid  $4,400 
 Expense incurred and outstanding $3,725 
 Depreciation on Equipment        140  
  Total Expense     $8,265 
  Net Income     $12,915 
        ====== 
 Modified cash basis of accounting.
Cash recd for Services rendered on Account  $12,450 
 Expenses paid    $6,500 
 Depreciation on Equipment        140  
  Total Expense     $6,640 
  Net Income     $5,810 
        ======
 Accounting for prepaid expenses and unearned revenues. Hawaii-Blue began business on 
January 1 of the current year and offers deep sea fishing trips to tourists. Tourists pay $125 in 
advance for an all-day outing off the coast of Maui. The company collected monies during 
January for 210 outings, with 30 of the tourists not planning to take their trips until early 
February. Hawaii-Blue rents its fishing boat from Pacific Yacht Supply. An agreement was 
signed at the beginning of the year, and $72,

Week Two Exercise Assignment Revenue and Expenses Revenue and Expenses. Dave Morris began a law practice several years ago, shortly after graduating from law school. During 19X1, he was approached by...

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Services rendered during October to customers on account	$14,380
Cash receipts from
Owner investment	7,000
Customers on account	5,650
Cash customers for services rendered in October	6,800
Cash payments to
Creditors for expenses incurred during October	4,400
Creditors for expenses incurred prior to October	2,100
Monroe Equipment for purchase of new machinery on
October 1	8,400
Expenses incurred during October, to be paid in future
months	3,725

Case A	Case B	Case C
Balance per bank $6,000	$4,000	$ ?
Outstanding checks $500	2,100	1,400
Deposits in transit $2,000	7	1,000
Balance per company records ?	8,000	450

Balance per bank	$6,150
Balance per company records	3,580
Bank service charge for January	20
Deposits in transit	940
Interest on note collected by bank	100
Note collected by bank	1,000
NSF check returned by the bank with the
bank statement	650
Outstanding checks	3,080

Sales on account	$2,000,000
Cash collections from credit customers	1,600,000
Sales discounts	50,000
Sales returns & allowances	100,000
Uncollectible accounts written off	29,000
Collections on accounts that were previously written off	2,700