Reed & Company keeps their accounting records on the cash basis, but converts to

Q: Reed & Company keeps their accounting records on the cash basis, but converts to

Solution a: Solution b: Computation of Service Revenue Particulars Amount Cash received from clients $260,000.00 Add: Ending accounts receivables $42,000.00 Less: Beginning accounts receivables -$14,000.00 Add: Beginning earned service revenue $70,000.00 Less: Ending unearned service revenue -$65,000.00 Service Revenue on accrual basis $293,000.00

ID: 2336863 • Letter: R

Question

Reed & Company keeps their accounting records on the cash basis, but converts to the accrual basis to prepare annual financial statements. During the year, Reed’s clients paid them $260,000 and Reed paid $85,000 to cover operating expenses. Reed’s account balances as of January 1 are given below, as are the correct (accrual) December 31 balances.

January 1, 2017

December 31, 2017

Accounts Receivable

$14,000

$42,000

Prepaid Expenses

$28,000

$31,000

Accumulated Depreciation

$48,000

$64,000

Accrued Liabilities

$54,000

$46,000

Unearned Service Revenue

$70,000

$65,000

Compute (a) service revenue and (b) operating expenses on the accrual basis. Please show work showing how the t-accounts flow!