The following summary transactions occurred during the year 2018: Sales to customers totaled $30,000 of which $16,000 were on credit and the remainder was cash sales. Cost of goods sold totaled $8,000. Purchased $7,000 inventory on credit. Paid $6,200 cash for salaries. Collected $17,500 cash from credit customers. Paid $9,000 cash to suppliers of inventory. Paid cash $4,500 for purchase of equipment on January 1, 2018. The equipment has a useful life of years and zero salvage value. Paid cash for miscellaneous expenses for 2018 of $2,800, and for insurance for 2018 of $500. Paid cash for flood damage to rented premises amounting to $8,050, of which $3,000 was recoverable from insurance in March 2019. The company considers such losses to be non-recurring in nature and labels them “Non-recurring losses”.
At December 31, 2018, the following information is available: Accrued salaries at December 31, 2018 are $1,200. Interest on bonds payable has not been paid during 2018. $1,800 of prepaid rent related to the rent for 2018. The company uses straight-line depreciation. The equipment purchased before 2018 has an estimated useful life of 10 years and zero residual value. The company's effective tax rate is 40%, applicable to all items. No tax was paid during 2018.
Suppose all revenues and expenses appearing on the income statement are recognized on the basis of cash received and cash paid, how much would Sandusky show as Net Income for the year ended Dec. 31, 2018? What is this method of accounting called? Would this be a better measure of what the company made during the year? Presented below is the balance sheet of Sandusky Corporation for the year ended December 31, 2017. Assets Liabilities & Owners' Equity Current Assets: Cash Accounts Receivable Inventory Prepaid Rent $ 8,130 5,640 7,200 2,220 23,190 Current Liabilities: Accounts Payable Accrued Salaries Interest Payable $5,530 1,690 600 7,820 10% Bonds Payable 4,000 Fixed Assets: Owners' Equity Common Stock (at $ par) Additional Paid-in Capital Retained Earnings Equipment (Cost) 14,400 Accumulated Depreciation (2,880) Equipment (Net) 11,520 8,000 12,000 2,890 22,890 Total 34,710 Total 34,710