Reference no: EM132879690
Problem - Cash-Basis Accounting - Puntarelli Contracting keeps its accounting records on a cash basis during the year. At year-end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2018, Puntarelli reported the following balance sheet items:
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Debit
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Credit
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Cash
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$ 2,700
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Accounts receivable
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4,200
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Inventory
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5,600
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Equipment
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12,000
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Accumulated depreciation
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$ 4,800
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Accounts payable
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6,100
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T. Puntarelli, capital
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13,600
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Totals
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$24,500
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$24,500
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It is now the end of 2019. The company's checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300.
An examination of the cash payments shows that: (1) $30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for 2 years' annual rent), and (3) $6,000 was withdrawn by T. Puntarelli.
On December 31, 2019, (1) customers owed Puntarelli Contracting $5,900, (2) Puntarelli owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Puntarelli is depreciating the equipment using straight-line depreciation over a 10-year life (no residual value).
Required -
1. Using accrual-based accounting, prepare a 2019 income statement (show supporting calculations).
2. Using accrual-based accounting, prepare a December 31, 2019, balance sheet (show supporting calculations).