·Financial Statement Analysis - Common Size Analysis:

• Requirement: Perform common size analysis on the income statement.
• Question: Given the following income statement figures for a company: Sales revenue = $500,000, Cost of goods sold = $300,000, Operating expenses = $100,000, Interest expense = $10,000. Calculate the percentage of each expense item relative to sales revenue.

Question 1: A company purchases equipment for $50,000 cash. Outline the journal entries and subsequent ledger postings for this transaction under both cash basis and accrual basis accounting methods.

Requirements:

1. Record the journal entry to recognize the purchase of equipment under the cash basis method.
2. Post the journal entry to the Equipment account in the ledger.
3. Explain the impact of this transaction on the income statement under the cash basis method.
4. Record the journal entry to recognize the purchase of equipment under the accrual basis method.
5. Post the journal entry to the Equipment account in the ledger.
6. Explain the impact of this transaction on the income statement under the accrual basis method.
7. Compare and contrast the income statements generated under the cash and accrual basis methods.
8. Analyze the advantages and disadvantages of each method in recording this transaction.
9. Discuss how the choice of accounting method affects financial statement users' interpretation.
10. Evaluate which method provides a more accurate representation of the company's financial position and why.