Hal Corp Prepared the Following Income Statement Using the Cash Basis

question 115

Essay

Hal Corp. prepared the following income statement using the cash basis of accounting: $\begin{array}{c}\text {HAL CORP}\\\text {Income Statement, Cash Basis }\\\text {For the Year Ended December 31, 2016}\\\\\begin{array}{lrr}\text { Service revenue (does not include } \$ 25,000 \text { of services rendered on account }&\\ \text { because the collection will not be until 2017) } &\$370,000\\ \text { Expenses (does not include \( \$ 15,000 \) of expenses on account because} &\\ \text { payment will not be made until 2017)} &220,000\\ \text { Net income } &\$150,000\\\end{array}\end{array}$
Additional data:
1. Depreciation on a company automobile for the year amounted to $6000. This amount is not included in the expenses above.
2. On January 1 2016 paid for a two-year insurance policy on the automobile amounting to $1800. This amount is included in the expenses above.
Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.

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Definitions:

Eardrum

A thin membrane that separates the external ear from the middle ear, and vibrates when sound waves hit it, aiding in hearing.

Eighth Cranial Nerve

Also known as the vestibulocochlear nerve, it is responsible for transmitting sound and equilibrium (balance) information from the inner ear to the brain.

Sensory Change

Alterations in the way an individual perceives sensory input, which can affect vision, hearing, taste, touch, or smell.

Older Adult

A term referring to someone in the later stage of life, often defined as being 65 years or older, who may face unique health and social challenges.