59) Data from the accounting system of On-a-Roll, Inc. are provided below. All amounts are before the current year’s adjustments are recorded. All adjustments are recorded at yearend.
On-a-Roll, Inc.
Balance Sheet
December 31, 2011
AssetsLiabilities and shareholders' equity (SE)
Cash$ 10,500Accounts payable$ 350
Inventory11,000Salaries payable450
Supplies200Notes payable3,000
Prepaid rent300
Equipment40,000Common stock20,200
Accumulated depreciation(10,000)Retained earnings28,000
Total assets$52,000Total liabilities & SE$52,000
Prepare the balance sheet after year-end adjustments using the following additional information.
a. A count of supplies reveals $20 on hand at the end of the year.
b. One-third of the prepaid rent was used up during the year.
c. One-fourth of the equipment is depreciated each year.
d. $350 of work for customers has been completed but not yet billed or collected.
e. Salaries of $150 have been earned by employees but not paid.
f. On January 1 of the current year, the company borrowed $3,000 on a three-year note payable. Interest accrues on the note at the rate of 6% per year.
60) Sam Sleimy wants to borrow money to expand his lawn maintenance business. He knows that his bank will want to see a full set of this year’s financial statements before agreeing to lend the company money. Normally his company bills customers at the end of each month, for services that have already been performed. Sam tells the company accountant, Tom Trueheart, to start billing all regular customers in advance, and record revenue for the amounts that have been billed. This means that bills for January of next year will be sent out in December.
1. What effect will billing customers in advance have on this year’s income statement for the year ended December 31? How will the balance sheet be affected? Why would Sam ask Tom Trueheart to do this?
2. Would it be ethical for Tom to do as Sam asks? Why?