Several years ago, your brother opened Magna Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an as- sistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (which follow) prepared from accounts maintained by a part-time bookkeeper. Magna Appliance Repairs Income Statement For the Year Ended October 31, 2019 Service revenue. $675,000 Less: Rent paid.. Wages paid. Supplies paid Utilities paid. Insurance paid Miscellaneous payments.... $187,200 148,500 42,000 39,000 21,600 54,600 492,900 $ 182,100 Net income .. Magna Appliance Repairs Balance Sheet October 31, 2019 Assets $ 95,400 Cash Amounts due from customers.... Truck... Total assets 112,500 332,100 $540,000 Equities Owner's capital $540,000 After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for “Amounts Due from Customers." The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted. Why do you think the loan officer suspected that the accounts had not been a. adjusted prior to the preparation of the statements? b. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.
Several years ago, your brother opened Magna Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an as- sistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (which follow) prepared from accounts maintained by a part-time bookkeeper. Magna Appliance Repairs Income Statement For the Year Ended October 31, 2019 Service revenue. $675,000 Less: Rent paid.. Wages paid. Supplies paid Utilities paid. Insurance paid Miscellaneous payments.... $187,200 148,500 42,000 39,000 21,600 54,600 492,900 $ 182,100 Net income .. Magna Appliance Repairs Balance Sheet October 31, 2019 Assets $ 95,400 Cash Amounts due from customers.... Truck... Total assets 112,500 332,100 $540,000 Equities Owner's capital $540,000 After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for “Amounts Due from Customers." The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted. Why do you think the loan officer suspected that the accounts had not been a. adjusted prior to the preparation of the statements? b. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Several years ago, your brother opened Magna Appliance Repairs. He made a small initial
investment and added money from his personal bank account as needed. He withdrew
money for living expenses at irregular intervals. As the business grew, he hired an as-
sistant. He is now considering adding more employees, purchasing additional service
trucks, and purchasing the building he now rents. To secure funds for the expansion,
your brother submitted a loan application to the bank and included the most recent
financial statements (which follow) prepared from accounts maintained by a part-time
bookkeeper.
Magna Appliance Repairs
Income Statement
For the Year Ended October 31, 2019
Service revenue.
$675,000
Less: Rent paid..
Wages paid.
Supplies paid
Utilities paid.
Insurance paid
Miscellaneous payments....
$187,200
148,500
42,000
39,000
21,600
54,600
492,900
$ 182,100
Net income ..
Magna Appliance Repairs
Balance Sheet
October 31, 2019
Assets
$ 95,400
Cash
Amounts due from customers....
Truck...
Total assets
112,500
332,100
$540,000
Equities
Owner's capital
$540,000
Transcribed Image Text:After reviewing the financial statements, the loan officer at the bank asked your brother
if he used the accrual basis of accounting for revenues and expenses. Your brother
responded that he did and that is why he included an account for “Amounts Due from
Customers." The loan officer then asked whether or not the accounts were adjusted
prior to the preparation of the statements. Your brother answered that they had not
been adjusted.
Why do you think the loan officer suspected that the accounts had not been
a.
adjusted prior to the preparation of the statements?
b. Indicate possible accounts that might need to be adjusted before an accurate set of
financial statements could be prepared.
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