The following information pertains to Stein Flowers a calendar year sole
The following information pertains to Stein Flowers, a calendar-year sole proprietorship, which maintained its books on the cash basis during the year.
Unadjusted Trial Balance as of December 31, 2014

The Stein, drawings account is used to record any distributions to Mark Stein. The Stein capital account is used to record any capital contributions that Stein makes to the business and any profits or losses retained in the business.
Stein has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is requesting 2014 financial statements prepared on the accrual basis of accounting from Stein. During the course of a review engagement, Sue Crook, Stein’s accountant, obtained the following additional information:
1. Amounts due from customers totaled $27,500 at December 31, 2014.
2. An analysis of the receivables revealed that an allowance for uncollectible accounts of $2,800 should be provided.
3. Unpaid invoices for flower purchases totaled $33,500 and $21,000 at December 31, 2014, and December 31, 2013, respectively.
4. A physical count of the goods at December 31, 2014, determined that the inventory totaled $71,900. The inventory was priced at cost, which approximates market value.
5. On May 1, 2014, Stein paid $9,000 to renew its comprehensive insurance coverage for one year. The premium on the previous policy, which expired on April 30, 2014, was $8,700.
6. On January 2, 2014, Stein entered into a 25-year operating lease for the vacant lot adjacent to his retail store, which was to be used as a parking lot. As agreed to in the lease, Stein paved and fenced in the lot at a cost of $50,000. The improvements were completed on April 1, 2014, and have an estimated useful life of 20 years. No provision for depreciation or amortization has been recorded. Depreciation on furniture and fixtures was $13,000 for 2014.
7. Accrued expenses at December 31, 2013 and 2014, follow:

8. Stein was notified late in the year of a lawsuit filed against his business for an injury to a customer. His attorney believes that an unfavorable outcome is probable and that a reasonable estimate of the settlement exclusive of amounts covered by insurance is $40,000.
9. The Salaries account includes $5,000 per month paid to the proprietor. He also receives $250 per week for living expenses. These amounts should have been charged to Stein’s drawing account.

1. Determine the adjustments required to convert Stein Flowers’ unadjusted trial balance to the correct accrual basis of accounting for the year ended December 31, 2014. Prepare formal journal entries to support your adjustments.
2. Write a brief memo to Stein explaining why the bank would require financial statements prepared on the accrual basis instead of the cashbasis.
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