xuAM CladAuthe xYA Section Selection x x MHE Reader x Course

x-uAM Clad-Authe xYA Section Selection, x) x MHE Reader x Course Home x New ems Correct Help Sa Adjusting Entries Exercise 2-19 Cash versus accrual accounting [LO2-8] Haskins and Jones, Attorneys-at-Law, maintain its books on a cash basis. During 2018, the company collected $620,000 in fees from ts clients and paid out $427000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred fee revenue, and accrued lablities January 1, Decesber 31, 2018 67,000 7,500 9,400 12,600 ccounts recel Trepaid inauranee $77,000 6,000 0,700 10,700 Prepald rent Deferzed foe revenue lecrued liabiliele (for various expenses) 13,700 18,100 In addition, 2018 depreciation expense on furniture and fixtures is $29,500 Required: Determine accrual basis net income for 2018 Pree so, 5111 Next 8

Solution

Accrual basis net income for 2016 Revenue (Note:1) 608100 Less: Expenses (Note:2) 428700 Net income 179400 Notes: 1. Calculation of revenues Cash collected 620000 Accounts receivable decreases (77000-67000) -10000 Increase in deferred fee revenue (12600-10700) -1900 Revenues 608100 2. Calculation of expenses Cash paid 427000 Accrued liabilities increases (12600-10700) 1900 Increase in prepaid insurance (7500-6000) -1500 Decrease in prepaid rent (10700-9400) 1300 Expenses 428700