Cash versus accrual method of accounting

Assignment Help Accounting Basics

Reference no: EM1355391

Drysdale Company was established to manufacture components for the auto industry. The components are shipped the same day are purchased. The following events took place during the first year of operations.

a. Issued common stock for $50,000 cash investment.

b. Purchased truck at the beginning of the year at a cost of $10,000 cash. The truck is expected to last five years and will be worthless at the end of that time.

c. Manufactured and sold 500,000 components the first year. The costs incurred manufacture the components are (1) $1,000 monthly rent on a facility that included utilities and insurance, (2) $400,000 of raw materials purchased on account ($100,000 still unpaid as of year-end, but all materials were used in manufacturing, and (3) $190,000 paid in salaries and wages to employees and supervisors.

d. Paid $100,000 to sales and office staff for salaries and wages.

e. Sold all components on account for $2 each. As of year-end, $150,000 is due from customers.

Required:

1. How much revenue will Drysdale recognize under the cash method and under the accrual basis?

2. Describe how Drysdale should apply the matching principle to recognize expenses.

3. Prepare an income statement according to the accrual method. Ignore income taxes.

Reference no: EM1355391

Questions Cloud

Explain what can you do if you just cannot : Explain What can you do if you just cannot use a probability sampling technique and Why is this important

Illustrate how many would you expect to be sold under each : Illustrate how many would you expect to be sold under each pair of price and income demand elasticity estimates.

Determination of depreciation expense : Under MACRS, an asset which originally expenses $10,000 is being depreciated using a five year normal recovery period. Determine the depreciation expense in year 3?

Organizational renewal and transformation : Organizational renewal and transformation- A better definition for organizational renewal and organizational transformation.

Cash versus accrual method of accounting : How much revenue will Drysdale recognize under the cash method and under the accrual basis? Describe how Drysdale should apply the matching principle to recognize expenses. Prepare an income statement according to the accrual method. Ignore income ta..

What is the fastest hunter swing his rock without breaking : An old hunting weapon was a rock on the end of a string. The hunter would swing the rock in horzontal circles and then throw it. If the rock had a mass of 2 kg and the 2 m long string breaks when the tension is 60N.

Organizational functions for your venture : Organizational functions for your venture - Explain how you would manage the following organizational functions for your venture in the selected country

Illustrate what is your view of the law forbidding the sale : This means that there is a bigger shortage or excess demand than there otherwise would be. Illustrate what is your view of the law forbidding the sale of human organs.

Self-assessment inventory in area of vocational counseling : Think about what you might learn about yourself as a result of taking a self-assessment inventory in the area of vocational/career counseling/development at this stage of your life (age 52, white female, divorced, living in the U.S).

User Account

All Pages