Question

Refer to the information in E3-36. Denis operated Denis’s Great Gifts until December 31. In the two months, he sold merchandise to customers for $52,000, all in cash, except for $1,200 that was owed by one customer. He sold all the inventory he originally purchased in October ($22,000) plus most of an additional $10,000 of inventory he purchased in early December. At the end of December, there was about $600 of inventory unsold. As of the end of December, he owed one of his suppliers $1,750.
He paid the sales people he hired $3,000 in cash for their work and owed them $400 on December 31. He also incurred an additional $1,500 in advertising costs, all of which had been paid for as of the end of December. At the end of December, he also owed about $500 for utilities and other miscellaneous costs that were incurred during November and December.

Required:
a. Prepare income statements for Denis’s Great Gifts for the period ending December 31 on the cash basis and on the accrual basis. (To do this question, you will also =have to complete the spreadsheet required in E3-36.)
b. Explain why the two income statements are different.
c. Prepare a balance sheet as of December 31, 2017.
d. Assess the performance of Denis’ business using the statements you prepared. Also discuss any issues surrounding Denis’ inventory on December 31.



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  • CreatedFebruary 26, 2015
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