Eddy's Piano Rebuilding Company has been operating for one year (2010). At the start of 2011, its income statement accounts had zero balances and its balance sheet account balances were as follows:

Required:
1. Create T-accounts for the balance sheet accounts and for these additional accounts: Rebuilding Fees Revenue, Rent Revenue, Wages Expense, and Utilities Expense. Enter the beginning balances.
2. Enter the following January 2011 transactions in the T-accounts, using the letter of each transaction as the reference:
a. Received a $600 deposit from a customer who wanted her piano rebuilt.
b. Rented a part of the building to a bicycle repair shop; received $360 for rent in January.
c. Rebuilt and delivered five pianos in January to customers who paid $17,400 in cash.
d. Received $7,200 from customers as payment on their accounts.
e. Received an electric and gas utility bill for $420 to be paid in February.
f. Ordered $960 in supplies.
g. Paid $2,040 on account in January.
h. Received from the home of Ms. Eddy, the major shareholder, a $720 tool (equipment) to use in the business.
i. Paid $12,000 in wages to employees who worked in January.
j. Declared and paid a $3,600 dividend.
k. Received and paid cash for the supplies in (f).
3. Using the data from the T-accounts, amounts for the following on January 31, 2011, were
Revenues $_______ – Expenses $_______ = Net Income $_______
Assets $_______ = Liabilities $_______ + Stockholders' Equity $_______
4. What is net income if Eddy's used the cash basis of accounting? Why does this differ from accrual basis net income (in requirement3)?

Transcribed Image Text:

Cash Accounts receivable Supplies Equipment Land Accounts payable $7.200 30,000 1.440 9.600 7.200 9.600 Unearned fee revenue (deposits) Note payable (long-term) Contributed capital Retained earnings Building S 3.840 48,000 9,600 10.800 26,400