## Answers

Accrual basis income statement for 2021 is shown below: | |||

Income statement | |||

Sales revenue | $362,500 | ||

Less: Operating expenses: | |||

Salaries | $185,000 | ||

Supplies | $29,750 | ||

Rent | $14,000 | ||

Insurance | $9,250 | ||

Miscellaneous | $25,900 | ||

Depreciation | $15,000 | ||

Total operating expenses | $278,900 | ||

Operating income | $83,600 | ||

Less: Other expense: | |||

Interest | $2,250 | ||

Net income | $81,350 | ||

Calculate sales revenue | |||

Ending accounts receivable | $29,500 | ||

Add: Cash collected | $370,000 | ||

Less: Beginning accounts receivable | -$37,000 | ||

Sales revenue | $362,500 | ||

Calculate supplies expense | |||

Beginning supplies | $1,500 | ||

Add: Purchases | $30,000 | ||

Less: Ending supplies | -$1,750 | ||

Supplies expense | $29,750 | ||

Calculate insurance expense | |||

Total insurance paid | $11,000 | ||

Prepaid insurance | -$1,750 | ||

Insurance expense | $9,250 | ||

Calculate miscellaneous expense | |||

Miscellaneous paid | $25,000 | ||

Increase in accrued liabilies | $900 | (3800-2900) | |

Miscellaneous expense | $25,900 | ||

Interest expense | 150000*6%*3/12 | ||

Interest expense | $2,250 |

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