Question

Paul's Premium Pillows has the following events occur during the current year.

a. Paul paid his employees $90,000 cash for work done in the current year. He also owes an additional $10,000 for work done this year, which he plans to pay at the beginning of next year. This is his first time making a journal entry related to wages this year.

b. Paul purchases premium pillow inventory for $300,000. He paid for 80% of the amount using cash; the remaining 20% will be paid on account.

c. Paul purchases a TV advertisement during the current year, costing $20,000 cash. The advertisement is planned to run on the first Husky game of next year.

d. Paul sold some pillow inventory for $375,000 cash during the current year. $260,000 of this inventory was fully shipped to the customer. The remaining amount represents orders placed by customers that will not ship out until next year. The cost of the shipped pillows was $150,000.

1. If Paul used the accrual basis, total Revenues would be ....

2. If Paul used the accrual basis, total Expenses would be .....

3. If Paul used the cash basis, total Revenues would be .....

4. If Paul used the cash basis, total Expenses would be.....

Answer 1

1. The Total Revenue of Paul on accrual basis is 260,000 (as only these amount of inventory has been shipped during the year).

2. Total Expenditure of Paul on accrual basis : Wages of employess - 100,000

Cost of the Shipped Pilow - 150,000

    250,000

3. Total Revenue on Cash Basis - 375,000 (total of cash sales during the year)

4. Total Expenditure on Cash Basis - Wages of Employees - 90000

Cost of Pillow - 240000 (300000*80%)

Cost of TV advertisement - 20000

350000