Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the company recently borrowed $150,000 from a local bank, and the bank requires S&J to provide annual financial statements prepared on an accrual basis. During 2021, the following cash flows were recorded: Cash collected for: Services to customers $ 370,000 Cash paid for: Salaries $ 185,000 Supplies 30,000 Rent 14,000 Insurance 11,000 Miscellaneous 25,000 265,000 Net operating cash flow $ 105,000 You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities: January 1, 2021 December 31, 2021 Accounts receivable $ 37,000 $ 29,500 Prepaid insurance 0 2,500 Supplies 1,500 1,750 Accrued liabilities (for miscellaneous expenses) 2,900 3,800 In addition, you learn that the bank loan was dated September 30, 2021, with principal and interest at 6% due in one year. Depreciation on the company’s equipment is $15,000 for the year. Required: Prepare an accrual basis income statement for 2021. (Ignore income taxes.)

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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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	1500006%3/12
Interest expense	$2,250

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Cash collected for: Services to customers			$	370,000
Cash paid for:
Salaries	$	185,000
Supplies		30,000
Rent		14,000
Insurance		11,000
Miscellaneous		25,000		265,000
Net operating cash flow			$	105,000

	January 1, 2021		December 31, 2021
Accounts receivable	$	37,000	$	29,500
Prepaid insurance		0		2,500
Supplies		1,500		1,750
Accrued liabilities (for miscellaneous expenses)		2,900		3,800

Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis. However, the...

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