Horeb Company, a ski tuning and repair shop, opened in November 2011. The company carefully kept track of all its cash receipts and cash payments. The following information is available at the end of the ski season, April 30, 2012.
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You learn that the repair equipment has an estimated useful life of 4 years. The company rents space at a cost of $175 per month on a one-year lease. The lease contract requires payment of the first and last months’ rent in advance, which was done. The part-time helper is owed $420 at April 30, 2012, for unpaid wages. At April 30, 2012, customers owe Mt. Horeb Company $420 for services they have received but have not yet paid for.

Instructions
(a) Prepare an accrual-basis income statement for the 6 months ended April 30, 2012.
(b) Prepare the April 30, 2012, classified balance sheet.

SOLUTION:

(a)
MT. HOREB COMPANY
Income Statement
For the Six Months Ended April 30, 2012

Revenues Repair services ($32,150 + $420) $32,570 Expenses Income tax expense $10,000 Salaries and Wages expense ($2,600 + $420) 3,020 Rent expense ($1,225 – $175) 1,050 Utilities expense 970 Depreciation expense [($9,200 ÷ 4) X 6/12] 1,150 Advertising expense 375 Total expenses 16,565 Net income $16,005

(b)
MT. HOREB COMPANY
Balance Sheet
April 30, 2012

Assets Current Assets Cash $27,780 Accounts receivable 420 Prepaid rent 175 Total current assets $28,375 Property, plant, and equipment Equipment 9,200 Less: Accumulated depreciation—equipment 1,150 8,050 Total assets $36,425

Liabilities and Stockholders’ Equity Current Liabilities Salaries and wages payable $ 420 Stockholders’ equity Common stock $20,000