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GEE Company: Determine accrual and cash basis revenue for magazine publisher

E2 - 1

Determine accrual - and cash - basis revenue

In November 2005 GEE Company, a newly organized magazine publisher, received $36,000 for 1,000 three year subscription at $12.00 per year, starting January 2006 issues of the magazine.

Required: Provide answer and reason for answer

How much should GEE report in its 2005 income statement for subscriptions revenue on an accrual basis?

How much revenue would be reported in 2005 on a cash basis?

E2 - 11
Determining gain (loss) from discontinued operations

Munn Corporation's income statement for three years ended December 31, 2006 and 2005 included the following information before adjustments:

2006 2005

Operating income $ 800,000 $ 600,000
Gain on sale of division $ 450,000 -
$ 1,250,000 $ 600,000
Provision for income taxes $ 375,000 $ 180,000
Net income $ 875,000 $ 420,000

On January 1, 2006 Munn Corporation agreed to sell the assets and product line of one of its operating divisions for $ 1,600,000. The sale was consummated on December 31, 2006, and it resulted in a gain on dispositions of $ 450,000. This division's pre - tax net losses were $ 320,000 in 2006 and $ 250,000in 2005. The income tax rate for both years was 30%.

Required: Provide answer and reason for answer

Starting with the operating income (before tax), prepare revised comparative income statements for 2006 and 2005 showing appropriate details for gain (loss) from discontinued operations.

P2 - 2
Journal entries and statement preparation

· On January 1, 2005 Frances Corporation started doing business and the owners contributed $200,000 capital cash.
· The company paid $24,000 to cover rent for the office space for 24 - month period from January 1, 2005 to December 31, 2006
· On March 1, 2005 MSK Inc. entered into a consulting contract under which Frances Corporation promised to provide consulting to MSK Inc. for a ten month period from March 1, 2005 to December 31, 2005. In return MSK Inc. promised to pay a monthly consulting fee of $15,000, which was to be paid in January 2006. Frances Corporation fulfilled its contractual obligation during 2005.
· On July 1, 2005 Frances Corporation purchased office equipment for $100,000 cash. The equipment has an estimated useful life of five years and no salvage value. The equipment was immediately placed into use. Frances Corporation uses straight - line method of depreciation. Frances Corporation records depreciation expense in proportion to the number of month's usage.
· Through November 30, 2005, the company had paid $66,000 to its employees for 11 months of salaries. Accrued salaries on December 31, 2005 were $6,000.
· On December 31, 2005, Norbert Corporation advanced $ 20,000 to Frances Corporation for consulting services to be provided during 2006.

Required: Provide answer and reason for answer

1. Provide journal entries for each of these transactions.
2. Provide adjusting entries at the end of the year.
3. Prepare an income statement for the year ended December 31, 2005.
4. Prepare a balance sheet as of December 31, 2005.

Solution Summary

The solution carefully explain each of the concepts, lays out the problem, solves for the answers.