Profit
$4,450
239. Prepare an income statement for the year ended December 31, 2020
Inuvic Realty
Income Statement
For the Year Ended December 31, 2020
Revenue:
Realty Revenue
$35,000
Operating Expenses:
Advertising expense
$7,000
Wages expense
11,200
Maintenance expense
12,350
$30,550
Profit
$4,450
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-08 Prepare financial statements reflecting business transactions.
Topic: 01-25 Income Statement
240. Calculate the balance of the account "Charlie Inuvic, Capital", at December 31, 2020
Inuvic Realty
Statement of Changes in Equity
For the Year Ended December 31, 2020
Inuvic, Capital, Dec 1
$3,000
Add:
Profit
4,450
Total
$7,450
Less: Withdrawals by owner
500
Inuvic, Capital, Dec 31
$6,950
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-08 Prepare financial statements reflecting business transactions.
Topic: 01-26 Statement of Changes in Equity
You are the accountant for Klemmer Corporation. At the company's year end, December 31, 2020, you discover there is an amount of $30,000 that has been earned by Klemmer but not yet billed to its customers by the year end. Laura Klemmer, the owner, tells you not to bill the customers as it is company policy not to bill customers until February 2020, well after the Christmas holidays. Klemmer has sales staff that are paid a bonus at year end on sales revenue billed.
241. What account(s) is (are) affected by not recording the transaction? Identify the account(s) as an asset, liability, revenue or expense.
Accounts receivable - Asset; Sales Revenue - Revenue
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-07 Analyze business transactions by applying the accounting equation.
Topic: 01-18 GAAP for Public vs. Private Enterprises
242. What accounting principle has been violated by not billing customers for the year ended December 31, 2016? Explain.
Revenue recognition principle was violated. Revenue was earned but not yet recognized as sales revenue in the accounting records.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
Topic: 01-18 GAAP for Public vs. Private Enterprises
243. Are there any ethical issues involved in not billing the customers? Explain.
Financial information not presented on the financial statements is misleading in that it does not accurately state the company's financial position at year end. Specifically, sales revenue on the income statement is understated which also understates the bonus payment due to sales staff. Accountants need to include revenue earned by a company whether cash is collected or not.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 01-04 Identify and explain why ethics and social responsibility are crucial to accounting.
Topic: 01-15 Understanding Ethics
244. Describe the relationship between sales (or revenues), expenses, and profit.
Sales, or revenues, are the amounts earned from selling products and services. Expenses are the costs incurred to generate sales or revenues. Sales (revenues) less expenses equals profits (profit).
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-06 Identify and explain the content and reporting aims of financial statements.
Topic: 01-20 Previewing Financial Statements