Problem 3. In its first year of Operations Bere Company earned $28,000 in servic

Question

Problem 3. In its first year of Operations Bere Company earned $28,000 in service revenue, $6,000 of which was on account and still outstanding at year-end. The remaining $22,000 was received in cash from customers. The company incurred operating expenses of $14,500. Of these expenses $13,000 were paid in cash; $1,500 was still owed on account at year-end. In addition, Bere prepaid S3,600 for insurance coverage that would until the second year of Operations. Instructions (a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first y earnings under the accrual basis of accounting. (b) Which basis of accounting (cash or accrual) provides more useful information for decision makers Problem 4. Rollins Company accumulates the following adjustment data at December 31. (a) Service Revenue earned but unbilled totals $600. (b) Store supplies of $300 are on hand. Supplies account shows $1,900 balance. (c) Utility expenses of $275 are unpaid. (d) Service revenue of $490 collected in advance has been earned. (e) Salaries of $800 are unpaid. () Prepaid insurance totaling $400 has expired. Instructions (a) Prepare journal entries for each of the events above (b) Indicate the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).

Explanation / Answer

Answer:

Problem :3

Accrual basis Net earning

13500

Cash basis Net earning

5400

Working notes for the above answer is as under

Accrual basis Net earning

Sales revenue

28000

less: Operating expanses

-14500

Net Earning

13500

Cash basis Net earning

Sales revenue

22000

less: cash expanses

Operating expanses

-13000

Insurance paid

-3600

Net Earning

5400

Note:

As in the question two different question was given so as per guide line I answer First question

Accrual basis Net earning

13500

Cash basis Net earning

5400

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