Amount is included in the expenses above

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Reference no: EM13840595

Hooper Company prepared the following income statement using the cash basis of accounting:

HOOPER COMPANY

Income Statement, Cash Basis

For the Year Ended December 31, 2013

Service revenue (does not include $40,000 of services rendered on account

      because the collection will not be until 2014)......................................................       $380,000

Expenses (does not include $20,000 of expenses on account because

      payment will not be made until 2014) .................................................................         220,000

Net income ...............................................................................................................       $160,000

Additional data:

1.   Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above.

2.   On January 1, 2013, paid for a two-year insurance policy on the automobile amounting to $1,600. This amount is included in the expenses above.

Instructions:

(a)    Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.

(b)    Explain which basis (cash or accrual) provides a better measure of income.

Reference no: EM13840595

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