Reference no: EM132879690

Problem - Cash-Basis Accounting - Puntarelli Contracting keeps its accounting records on a cash basis during the year. At year-end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2018, Puntarelli reported the following balance sheet items:

	Debit	Credit
Cash	$ 2,700
Accounts receivable	4,200
Inventory	5,600
Equipment	12,000
Accumulated depreciation		$ 4,800
Accounts payable		6,100
T. Puntarelli, capital		13,600
Totals	$24,500	$24,500

It is now the end of 2019. The company's checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300.

An examination of the cash payments shows that: (1) $30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for 2 years' annual rent), and (3) $6,000 was withdrawn by T. Puntarelli.

On December 31, 2019, (1) customers owed Puntarelli Contracting $5,900, (2) Puntarelli owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Puntarelli is depreciating the equipment using straight-line depreciation over a 10-year life (no residual value).

Required -

1. Using accrual-based accounting, prepare a 2019 income statement (show supporting calculations).

2. Using accrual-based accounting, prepare a December 31, 2019, balance sheet (show supporting calculations).