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December 21, 2014

December 21, 2014

Posted by **Nancy** on Tuesday, March 9, 2010 at 5:53pm.

if you could just help me get started in the right direction that would be great, I don't even know where to begin with this question

ellar Company was established to manufacture components for the auto industry. The components are shipped the same day they are produced. The following events took place during the first year of operations.

a. Issued common stock for a $50,000 cash investment.

b. Purchased a delivery truck at the beginning of the year at a cost of $10,000 cash. The truck is expected to last five years and will be worthless at the end of that time.

c. Manufactured and sold 500,000 components the first year. The costs incurred to manufacture the components are (1) $1,000 monthly rent on a facility that included utilities and insurance; (2) $400,000 of raw materials purchased on account; $100,000 is still unpaid as of year-end but all materials were used in manufacturing; and (3) $190,000 paid in salaries and wages to employees and supervisors.

d. Paid $100,000 to sales and office staff for salaries and wages.

e. Sold all components on account for $2 each. _ As of year-end, $150,000 is due from customers.

1. How much revenue will Hellar recognize under the cash basis and under the accrual basis?

2. Describe how Hellar should apply the matching principle to recognize expenses.

3. Prepare an income statement under the accrual basis. Ignore income taxes.

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