Question

Accounting question. Determining net income help?

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2011, you discover the following:

a.

An insurance policy covering three years was purchased on January 1, 2011, for $6,000. The entire amount was debited to insurance expense and no adjusting entry was made for this item.

b.

During 2011, the company received a $1,000 cash advance from a customer for merchandise to be manufactured and shipped in 2012. The $1,000 was credited to sales revenue. No entry was made for the cost of merchandise.

c.

There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $750 were on hand at December 31.

d.

Hales borrowed $20,000 from a local bank on October 1, 2011. Principal and interest at 12% will be paid on September 30, 2012. No accrual was made for interest.

e.

Net income reported in the 2011 income statement $30,000 before reflecting any of the above items.

Determine the proper amount of net income for 2011. Net Income before = $30,000, Net Income after = $33,150. What are the steps to come to the final net income of $33,150.

Answers

An insurance policy covering three years was purchased on January 1, 2011, for $6,000. The entire amount was debited to insurance expense and no adjusting entry was made for this item.

Dr Prepaid Insurance 4,000

Cr Insurance Expense 4,000

b.

During 2011, the company received a $1,000 cash advance from a customer for merchandise to be manufactured and shipped in 2012. The $1,000 was credited to sales revenue. No entry was made for the cost of merchandise.

Dr Sales Revenue 1.000

Cr Unearned Revenue 1,000

c.

There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $750 were on hand at December 31.

Dr Supplies 750

Cr Supplies Expense 750

d.

Hales borrowed $20,000 from a local bank on October 1, 2011. Principal and interest at 12% will be paid on September 30, 2012. No accrual was made for interest.

20,000 x 12% x 3/12 = 600 accrued interest

Dr Interest Expense 600

Cr Interest Payable 600

e.

Net income reported in the 2011 income statement $30,000 before reflecting any of the above items.

Determine the proper amount of net income for 2011. Net Income before = $30,000, Net Income after = $33,150. What are the steps to come to the final net income of $33,150.

30,000 + 4,000 - 1,000 + 750 - 600 = 33,150

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