Joe Fast started a mobile snack food service on January 2, 2006, investing $15,000 cash depositing in a bank account in the name of “Fast Snacks.” He purchased a second hand, fully equipped truck. Joe operated on the cash basis of accounting, and at year’s end, he asks you to help him find his income or loss for the year or operation. You have determined the followings:

a. He purchased a used $24,000 truck that is depreciable at 20% per year. He paid $12,000 cash and financed $12,00 on a note at 8% interest
b. He started the operation with $3,000 cash available
c. He has $375 cash on hand and $28,454 cash in the bank at the end of the year.
d. His receipts for cash purchases of inventory for resale total $30,280.
e. The value of his ending inventory for resale is $624.
f. He paid $1,024 cash for all truck operating costs. In addition, he has an unpaid invoice for a recent truck repair in the amount of $280.00
g. He paid $1,280 of interest on the truck loan.
h. He informed you that he took $1625 a month for 12 months to use for living and other personal expenses.

You discovered that Joe kept no record of the cash sales he made during the year. Cash sales revenue must be determined from the information already noted. Show Joe how cash sales were determined and prepare an income statement using accrual accounting to show his operating income for the year.

Task 1: Set up the known information in a linear statement (6 points)

Hint:

Beginning Cash	+	Cash Sales	-	Cash Payments	=	Ending Cash

Task 2: Find the missing cash sales by reversing the additive functions. (6 points)

Hint:

Ending Cash	+	Cash Payments	-	Beginning Cash	=	Cash Sales

Task 3: Complete an Accrual Income Statement ( 18 points)
(please refer to page 36 of your textbook for examples. )
Hint:

Fast Snaks
Income Statement
For the Year Ended 12-31-2006

Sales Revenue		$
Cost of Sales:
Beginning Inventory	- 0 -
Purchases	$
Goods Available for sale	$
Less: Ending Inventory	(____)
Cost of Sales
Gross Margin		$
Operating Expenses
Truck operating expenses	$
Add: Truck expense invoice
Interest expense [8% × $12,000]
Depreciation expense [20% × $24,000]
Total Operating Expenses
Operating Income (before tax)

Answer rating: 100% (QA)

A B C E 7 P14 Calculation of cash sales 8 Cost of goods sold Operating expense Interest Expense 2965... View the full answer