Question

Seashore Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Seashore Home has collected $280 from cash-paying customers. Seashore Home's remaining customers owe the business $310. Seashore Home recorded $280 of service revenue for the year. Cash basis

If Seashore Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year? Splendid Occasions received $610 for services to be performed for the next 8 months on March 31 and recorded this transaction using the Unearned Revenue account Accrual basis If
Splendid Occasions had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?
Sweet Catering completed the following selected transactions during May 2016:
a) May 1: Prepaid rent for three months, $1,200
b) May 5: Received and paid electricity bill, $80
c) May 9: Received cash for meals served to customers, $180
d) May 14: Paid cash for kitchen equipment, $2,390
e) May 23: Served a banquet on account, $2,830
f) May 31: Made the adjusting entry for rent (from May 1)
g) May 31: Accrued salary expense, $3,010
h) May 31: Recorded depreciation for May on kitchen equipment, $120
If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.
If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

Answer 1

Under the accrual basis, Seashore Home would record $590 as service revenue; Splendid Occasions would report $610 under the cash basis. Sweet Catering would have a $3,490 net loss under the cash method and a $600 net loss under the accrual method in May.

Step-by-step explanation:

For Seashore Home, if they had recorded their service revenue using the accrual basis method, they would have recorded $590 ($280 from cash-paying customers and $310 from customers who owe) as service revenue for the year. With Splendid Occasions, under the cash basis method, they would have recorded $610 as service revenue for the year since it was received, even though the services are to be performed over the next 8 months.

For Sweet Catering, under the cash method, the net income for May would be calculated as follows:

• 
  
• Cash received from customers: $180
• 
  
• Less: Paid rent ($1,200), electricity bill ($80), kitchen equipment ($2,390)

The net loss under the cash method would be $1,200 + $80 + $2,390 - $180 = $3,490 net loss.

Under the accrual method, one would account for:

• 
  
• Revenue earned, including banquet served on account: $180 + $2,830 = $3,010
• 
  
• Less: Rent expense ($1,200 / 3 = $400 for May), electricity ($80), accrued salary expense ($3,010), depreciation ($120)

The net loss under the accrual method would be $3,010 - ($400 + $80 + $3,010 + $120) = $600 net loss.