Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

EXERCISE 3-2

Purpose:

(L.O. 2) This exercise illustrates the different results that are obtained when the accrual and the cash methods of accounting are used.

Annabelle's Specialty Service Shop, Inc. conducted the following transactions during the first week in March.

1. Paid 20% down; remaining 80% to be paid in 10 days.
2. Paid $30 for newspaper advertising to appear this week.
3. Collected $1,400 from customers on account.
4. Performed services at a $1,620 charge to a customer's account.
5. Paid $600 rent for the month of March.
6. Performed services for $280 cash.
7. Paid part-time sales clerk $40 wages for the week.
8. Declared and paid dividends of $100 to stockholders.
9. Consumed supplies of $1,400.

Instructions

1. Compute the net income for the week, using the cash method of accounting.
2. Compute the net income for the week, using the accrual method of accounting.

   Show your computations in good form.