Answer:
a-1) Lewis CPAs Income Statement:
Service Revenue $60,000
Salary Expense -$40,000
Net Income $20,000
a-2) Lewis CPAs Balance Sheet:
Cash $100,000
Total Assets $100,000
Liabilities + Equity:
Bank Loan $80,000
Retained Earnings $20,000
Total Liabilities + Equity $100,000
a-3) Lewis CPAs Statement of Cash Flows:
Cash from customers $60,000
Cash to suppliers of labor -$40,000
Net Cash from operating activities $20,000
Bank Loan $80,000
Total Cash inflows $100,000
a-4) Casual Clothing Income Statement
Sales $60,000
Cost of Sales -$32,000
Gross Profit $28,000
Operating Exp -$7,200
Net Income $20,800
a-5) Casual Clothing Balance Sheet:
Cash $82,800
Inventory $18,000
Total Assets $100,800
Liabilities + Equity:
Bank Loan $80,000
Retained Earnings $20,800
Total Liabilities + Equity $100,800
a-6) Casual Clothing Statement of Cash Flows:
Cash from customers $60,000
Cash to suppliers -$50,000
Operating Expenses -$7,200
Net Cash from operating activities $2,800
Bank Loan $80,000
Total Cash inflows $82,800
b) Casual Clothing has product costs. While Lewis CPAs has service costs.
Explanation:
a) Revenue from Customers: Lewis CPAs as a service business does not have sales as revenue from customers. Its revenue from customers is described as Service Revenue. For Casual Clothing, its revenue from customers is typically described as Sales.
b) Cost of Goods Sold: Lewis CPAs has cost of goods sold in the form of salaries paid to providers of labor, while Casual Clothing's cost of goods sold is in the form of inventory. Therefore, there is always inventory either at the beginning or at the ending of the business period.
c) Ending Inventory for Casual Clothing is determined as follows:
Purchase = $50,000
Cost of Sales = -$32,000
Ending Inventory = $18,000
d) Cash Balances:
i) Lewis CPAs:
Bank Loan = $80,000
Cash from customers = $60,000
Salary Expense= -$40,000
Balance = $100,000
ii) Casual Clothing:
Bank Loan = $80,000
Purchases = -$50,000
Cash from customers = $60,000
Operating Expense= -$7,200
Balance = $82,800
e) The Net Income in each case is treated as Retained Earnings since there are no other charge against it.
