Finn Fixes is a new charity that repairs donated cars for use by unemployed job seekers. Finn gets the cars for free from churches in the area. The churches collect the used cars from their congregations. The first year Finn is in operation, jobs programs bought cars from the organization for $ 60,000. They paid Finn $ 45,000 during the year, and owe $ 15,000. Finn uses donated labor and free garage space at a local high school. Its only cost is for parts. Total parts cost $ 58,000 for the year. During that first year Finn paid its parts suppliers $ 52,000. It owes its suppliers the balance.
1. What is the profit or loss to Finn Fixes on a cash basis?
2. What is the profit or loss to Finn Fixes on an accrual basis?
3. If Finn Fixes were to stop operating at the end of the first year but received payment from the jobs programs and paid its suppliers, what would its cash budget for the next year be?
4. How much cash would Finn Fixes have on hand at the end of the second year? How does that amount compare to its budgeted accrual basis profit or loss for the first year?
5. Which basis reflects the long- term stability of the organization?