Please complete each of the 3 (three) tasks listed at the end of the problem based on the information below information.
Joe Fast started a mobile snack food service on January 2, 2006, investing $15,000 cash depositing in a bank account in the name of “Fast Snacks.” He purchased a second hand, fully equipped truck. Joe operated on the cash basis of accounting, and at year’s end, he asks you to help him find his income or loss for the year or operation. You have determined the followings:
a. He purchased a used $24,000 truck that is depreciable at 20% per year. He paid $12,000 cash and financed $12,00 on a note at 8% interest
b. He started the operation with $3,000 cash available
c. He has $375 cash on hand and $28,454 cash in the bank at the end of the year.
d. His receipts for cash purchases of inventory for resale total $30,280.
e. The value of his ending inventory for resale is $624.
f. He paid $1,024 cash for all truck operating costs. In addition, he has an unpaid invoice for a recent truck repair in the amount of $280.00
g. He paid $1,280 of interest on the truck loan.
h. He informed you that he took $1625 a month for 12 months to use for living and other personal expenses.
You discovered that Joe kept no record of the cash sales he made during the year. Cash sales revenue must be determined from the information already noted. Show Joe how cash sales were determined and prepare an income statement using accrual accounting to show his operating income for the year.
Task 1: Set up the known information in a linear statement (6 points)
Hint:
Beginning Cash + Cash Sales - Cash Payments = Ending Cash
Task 2: Find the missing cash sales by reversing the additive functions. (6 points)
Hint:
Ending Cash + Cash Payments - Beginning Cash = Cash Sales
Task 3: Complete an Accrual Income Statement ( 18 points)
(please refer to page 36 of your textbook for examples. )
Hint:
Fast Snaks
Income Statement
For the Year Ended 12-31-2006
Sales Revenue $
Cost of Sales:
Beginning Inventory - 0 -
Purchases $
Goods Available for sale $
Less: Ending Inventory (____)
Cost of Sales
Gross Margin $
Operating Expenses
Truck operating expenses $
Add: Truck expense invoice
Interest expense [8% × $12,000]
Depreciation expense [20% × $24,000]
Total Operating Expenses
Operating Income (before tax) $
Question 12
Study the restaurant transactions for the month of March 2006 shown in the following list (a to i). Record the necessary journal entries, skipping a line between each entry. Journal entries and modified T ledger accounts can be prepared easily in MS Word by following the examples provided in your textbook. Please use the table feature in MS Word or any other word processing files and upload your completed response in Blackboard. To further simplify the problem, use the following account titles shown by category to prepare modified T accounts:
Balance Sheet Accounts:
Assets: Cash, Credit Card Receivable, Accounts Receivable, Food Inventory, Beverage Inventory, Prepaid Rent, Prepaid Insurance, Supplies, Equipment, and Furnishings
Liabilities: Accounts Payable, Note Payable
Ownership Equity: Capital
Income Statement Accounts: Sales Revenue, Salaries Expense, Wage Expense, and Interest Expense
a. Owner opened a business account and deposited $60,000 in the bank. (Answer is provided as a sample (0 pts)
b. Owner paid one year of rent in advance, $18,000 cash. (3 pts)
c. The owner purchased equipment $46,000; $16,000 cash and the balance on account. (3 pts)
d. Owner purchased $3,200 of food inventory on account and paid $3,800 cash for beverage inventory. (3 pts)
e. Owner purchased supplies for $2,650 cash. (3 pts)
f. Owner purchased $3,800 of food inventory on account. (3 pts)
g. Employees were paid wages $12,800 and salaries $2,400. (5pts)
h. Sales revenue first month was $42,800: 90% cash, 8% on credit cards, and 2% on accounts receivable. (5 pts)
i. Owner paid $8,000 on note payable, plus interest of $960. (5 pts)