Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2021), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. Cash sales $150,000 Collections on accounts receivable 350,000 Bank loan 90,000 Total cash receipts $590,000 The accounts receivable from customers at the end of the year are $120,000. You note that the accounts receivable at the beginning of the year were $190,000. The cash sales included $30,000 of prepayments for services to be provided over the period January 1, 2021, through December 31, 2023. Do not round intermediate computations. If required, round your final answers to the nearest dollar. a. Of the adjustments below, classify as either "Yes" (those that will be made) or "No" (not made) regarding the $590,000 of cash receipts to be converted to the accrual method. • The ending accounts receivable are added to the cash receipts. • The beginning accounts receivable are added to the cash receipts. • The loan proceeds are deducted from the cash receipts. • The entire amount of the prepayment for services is deducted from the cash receipts. The company's accrual basis gross income for 2021 is 410,000
Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2021), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. Cash sales $150,000 Collections on accounts receivable 350,000 Bank loan 90,000 Total cash receipts $590,000 The accounts receivable from customers at the end of the year are $120,000. You note that the accounts receivable at the beginning of the year were $190,000. The cash sales included $30,000 of prepayments for services to be provided over the period January 1, 2021, through December 31, 2023. Do not round intermediate computations. If required, round your final answers to the nearest dollar. a. Of the adjustments below, classify as either "Yes" (those that will be made) or "No" (not made) regarding the $590,000 of cash receipts to be converted to the accrual method. • The ending accounts receivable are added to the cash receipts. • The beginning accounts receivable are added to the cash receipts. • The loan proceeds are deducted from the cash receipts. • The entire amount of the prepayment for services is deducted from the cash receipts. The company's accrual basis gross income for 2021 is 410,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a.
Transcribed Image Text:Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year
(2021), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash
receipts are summarized as follows.
Cash sales
$150,000
Collections on accounts receivable
350,000
Bank loan
90,000
Total cash receipts
$590,000
The accounts receivable from customers at the end of the year are $120,000. You note that the accounts receivable at the beginning of the
year were $190,000. The cash sales included $30,000 of prepayments for services to be provided over the period January 1, 2021, through
December 31, 2023.
Do not round intermediate computations. If required, round your final answers to the nearest dollar.
a. Of the adjustments below, classify as either "Yes" (those that will be made) or "No" (not made) regarding the $590,000 of cash receipts
to be converted to the accrual method.
• The ending accounts receivable are added to the cash receipts.
• The beginning accounts receivable are added to the cash receipts.
• The loan proceeds are deducted from the cash receipts.
• The entire amount of the prepayment for services is deducted from the cash receipts.
The company's accrual basis gross income for 2021 is $
410,000
b. To reduce current income taxes, which method should be recommended for Blue to use, the cash method or the accrual method?
The cash method
its uncollected accounts receivable
- because if Blue uses the accrual method
it must pay current taxes on
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education