Gee Enterprises records all transactions on the cash basis. Greg Gee, company accountant, prepared the following income statement at the end of the company's first year of operations:

You have been asked to prepare an income statement on the accrual basis. The following information is given to you to assist in the preparation:

(a) Amounts due from customers at year-end were $28,000. Of this amount, $3,000 will probably not be collected.

(b) Salaries of $11,000 for December 2011 were paid on January 5, 2012. Ignore payroll taxes.

(c) Gee rents its building for $3,000 a month, payable quarterly in advance. The contract was signed on January 1, 2011.

(d) The bill for December's utility costs of $2,700 was paid January 10, 2012.

(e) Equipment of $30,000 was purchased on January 1, 2011. The expected life is five years, no salvage value. Assume straight-line depreciation.

(f) Commissions of 15% of sales are paid on the same day cash is received from customers.

(g) A 1-year insurance policy was issued on company assets on July 1, 2011. Premiums are paid annually in advance.

(h) Gee borrowed $50,000 for one year on May 1, 2011. Interest payments based on an annual rate of 12% are made quarterly, beginning with the first payment on August 1, 2011.

(i) The income tax rate is 40%. No prepayments of income taxes were made during 2011.

Instructions:
1. Prepare adjusting entries to convert the books from a cash to an accrual basis.
2. Prepare the income statement for the year ended December 31, 2011, based on the entries in(1).

Transcribed Image Text:

Gee Enterprises Income Statement For the Year Ended December 31, 2011 Sales Selling and administrative expenses: $252,000 S0 45,000 Salaries expense Commission expense Equipment Utilities expense Insurance expense Interest expense 29,000 228,800 $23,200 Net income