Hooper Company prepared the following income statement using the cash basis of accounting: Additional data:
1. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above.
2. On January 1, 2013, paid for a two-year insurance policy on the automobile amounting to $1,600. 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

Hooper Company prepared the following income statement using the cash basis of accounting:  Additional data:
1. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above.
2. On January 1, 2013, paid for a two-year insurance policy on the automobile amounting to $1,600. 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 Hooper Company prepared the following income statement using the cash basis of accounting:  Additional data:
1. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above.
2. On January 1, 2013, paid for a two-year insurance policy on the automobile amounting to $1,600. 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.

Hooper Company Prepared the Following Income Statement Using the Cash