Question

At January 1 (beginning of its fiscal year), Conover, Inc., a financial services consulting firm, reported the following account balances (in thousands, except for par and market value per share):
Cash $ 1,900 Accounts payable $ 210
Short-term investments 410 Unearned revenue 1,320
Accounts receivable 3,570 Salaries Payable 870
Supplies 150 Short-term note payable 780
Prepaid expenses 4,720 Common stock ($1 par value) 50
Office equipment 1,530 Additional paid-in capital 6,560
Accumulated depreciation-office equipment* (480) Retained earnings 2,010
*This account has a credit balance representing the portion of the cost of the equipment used in the past.
1. Received $9,500 cash for consulting services rendered.
2. Issued 10 additional shares of common stock at a market price of $120 per share.
3. Purchased $640 of office equipment, paying 25 percent in cash and owing the rest on a short-term note.
4. Received $890 from clients for consulting services to be performed in the next year.
5. Bought $470 of supplies on account.
6. Incurred and paid $1,800 in utilities for the current year.
7. Consulted for clients in the current year for fees totaling $1,620, due from clients in the next year.
8. Received $2,980 from clients paying on their accounts.
9. Incurred $6,210 in salaries in the current year, paying $5,300 and owing the rest (to be paid next year).
10. Purchased $1,230 in short-term investments and paid $800 for insurance coverage beginning in the next fiscal year.
11. Received $10 in interest revenue earned in the current year on short-term investments.
Prepare in good form an unadjusted classified income statement for the current year ended December 31. (Ignore income taxes.) (Enter your answer in thousands, not in dollars.)
Conover Inc
Income Statement (unadjusted)
Operating Revenues
Total Operating Revenues
Operating Expenses
Total Operating Expenses
Other item

Answer 1

Answer:

Conover, Inc.

Income Statement (unadjusted)

For the year ended December 31, 202x

Revenues:

• Service revenues $11,120
• Interest revenue $10                           $11,130

Expenses:

• Salaries expense $6,210
• Utilities expense $1,800                    ($8,010)

Operating income                                        $3,120

Explanation:

sales revenue = $9,500 + $1,620

interest revenue = $10

salaries expense = $6,210

utilities expense = $1,800

Accrual accounting states that revenues and expenses must be recognized during the periods that they actually occur and not necessarily when a cash inflow/outflow takes place. This is why next year insurance expense is not included even though the company paid for it during this year, nor is deferred revenue included.