
Concept explainers
Accrual accounting income determination
• LO2–4, LO2–8
During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2018, you discover the following:
a. An insurance policy covering three years was purchased on January 1, 2018, for $6,000. The entire amount was debited to insurance expense and no
b. During 2018, the company received a $1,000 cash advance from a customer for merchandise to be manufactured and shipped in 2019. The $1,000 was credited to sales revenue. No entry was recorded for the cost of merchandise.
c. There were no supplies listed in the
d. Hales borrowed $20,000 from a local bank on October 1, 2018. Principal and interest at 12% will be paid on September 30, 2019. No accrual was recorded for interest.
e. Net income reported in the 2018 income statement is $30,000 before reflecting any of the above items.
Required:
Determine the proper amount of net income for 2018.

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Chapter 2 Solutions
Loose Leaf Intermediate Accounting
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