The following information pertains to the operations of Wilke Investigating, a private detective agency, for December 2009.
- Wilke's employees earn $420 of salary collectively each day. The employees work Monday through Friday and are paid each Friday for the week just worked. December 31 falls of a Tuesday.
- On December 31, the owner estimates that December's electricity bill will be $240.
- The owner also estimates that the firm will have income tax expenses of $800 for December. This amount will be paid in march 2010.
- On December 1, Wilke received and recorded a $300 payment from a customer for services to be rendered by Wilke evenly during December, January, and February. Wilke's principal revenue account is Fees Revenue.
- Wilke received $680 cash from a new client on December 28, this amount was properly recorder. No services had been provided to this client as of December 31.
- Bonocher, Inc. owes Wilke $1,400 for services provided during December. No entry pertaining to these services has been recorded in Wilke's accounting records.
a.) For each bulleted item, prepare any necessary adjusting journal entry as of December 31 in Wilke's accounting records.
b.) Suppose that Wilke Investigating uses the cash basis of accounting instead of the accrual basis. Analyze each bulleted item and determine how Wilke's revenues and expenses for December would be affected by using the cash rather then accrual basis of accounting.
c.) Write a brief memo indicating whether the cash basis or accrual basis of accounting provides a more appropriate measure of Wilke's net income each accounting period.