At the beginning of 2020, Dr. John opened his medical practice as a personal service corporation. The
Question:
At the beginning of 2020, Dr. John opened his medical practice as a personal service corporation. The entity uses a December 31year-end calendar year and the accrual method of accounting. During the year, the corporation billed patients and insurance companies for $485,000 for medical services. At the end of the year, $60,000of this amount had not been collected. The entity earned $1,500interest on a money market account held in the local bank and another $1,500 interest on an investment in bonds.
Dr. John’s salary from his corporation is $14,000 per month. However, he did not cash his November and December payroll checks until January 2021. To help provide funds to invest in the nonbusiness, Dr. John’s parents loaned him $150,000 and did not charge him any interest. He also owns stock that has increased in value from $7,000 at the beginning of the year to more than $30,000 at the end of the year. In 2020, Dr. John’s wife died unexpectedly. Since Dr. John was the beneficiary of his wife’s life insurance policy, he received a check for $200,000 from the Insurance Company on December 2020.
Since Dr. John did not take accounting in college, he would like your help in calculating the correct amounts of his own gross income and the gross income of the corporation.
Would the calculations be different if the corporation used a cash method of accounting?
Please be specific if we need to add the $200,000 from the insurance company or not.
Please be specific if the $14,000 salary per month is taken out or kept for the gross amount.
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach