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.

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.

  • CreatedFebruary 26, 2015
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