Hal Corp. prepared the following income statement using the cash basis of accounting:
Additional data:
1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above.
2. On January 1, 2010, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above.
Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.

Question

Hal Corp. prepared the following income statement using the cash basis of accounting:  
Additional data:
1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above.
2. On January 1, 2010, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above.
Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.

Quizplus · Accepted Answer

The Answer of Hal Corp. prepared the following income statement using the cash basis of accounting:  
Additional data:
1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above.
2. On January 1, 2010, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above.
Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.

Hal Corp Prepared the Following Income Statement Using the Cash Basis