The Morris Company Uses Cash-Basis Accounting for Its Records

question 116

Essay

The Morris Company uses cash-basis accounting for its records. During 2015, Morris collected $150,000 from its customers, made payments of $70,000 to its suppliers for merchandise inventory, and paid $40,000 for operating costs. Morris wants to prepare its financial statements on an accrual basis. In gathering information for the accrual- basis financial statements, Morris discovered the following:
· At the beginning of 2015, customers owed Morris $20,000, and Morris owed suppliers
$7,000.
· At the end of 2015, customers owed Morris $30,000, and Morris owed suppliers $11,000.
· Two years ago, Morris purchased equipment for $10,000. The equipment has a useful life of five years and no salvage value.
· For the year 2015, Morris's beginning inventory was $5,000, and its ending inventory was
$6,500.
· At the beginning of 2015, Morris had prepaid rent of $3,000. At the end of the year, Morris had prepaid rent of $500.
Required:
Using accrual accounting, prepare an income statement for 2015 for Morris Company.

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Definitions:

Consumer Surplus

The gap between the sum consumers are ready and able to spend on a good or service and what they really pay for it.

Normal Goods

Goods for which demand increases as consumer income rises.

Decrease in Income

A reduction in the amount of money received by an individual or entity, typically measured over a particular period of time.

Market Quantity Supplied

The total amount of a specific good or service that is available to consumers in a market at a given price and time.