On January 1 2012 Norma Smith and Grant Wood formed

On January 1, 2012, Norma Smith and Grant Wood formed a computer sales and service
enterprise in Soapsville, Arkansas, by investing $90,000 cash. The new company, Arkansas
Sales and Service, has the following transactions during January.1. Pays $6,000 in advance for
3 months’ rent of office, showroom, and repair space.2. Purchases 40 personal computers at a
cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of
$300 each, paying cash upon delivery.3. Sales repair, and office employees earn $12,600 in
salaries and wages during January, of which $3,000 was still payable at the end of January.4.
Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15
printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a
deferred payment basis.5. Other operating expenses of $8,400 are incurred and paid for during
January; $2,000 of incurred expenses are payable at January 31.Instructions(a) Using the
transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis
income statement for the month of January.(b) Using the transaction data above, prepare (1) a
cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2012.(c)
Identify the items in the cash-basis financial statements that make cash-basis accounting
inconsistent with the theory underlying the elements of financial statements.View Solution:
On January 1 2012 Norma Smith and Grant Wood formed
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