Period 2 Quiz
Darya McNeil owns and operates Darya’s Day Spa. She has decided to sell the business and retire. She has had discussions with a representative from a regional chain of day spas. The discussions are at the complex stage of agreeing on a price. Among the important factors have been the financial statements of the business. Each year they develop a statement of profits on a cash basis; no balance sheet was prepared. Darya provided the other company with the following statement for 2018:
Darya’s Day Spa
Income Statement for 2018 Spa Fees Collected $1,215,000 Expenses paid: Rent for Office Space $130,000 Utility Expense 43,600 Telephone Expense 12,200 Salaries Expense 532,000 Supplies Expense 61,900 Miscellaneous Expenses 12,400 Total Expenses 792,100 Profit for 2018 $422,900
You have been asked to examine the financial figures for 2018. The other company’s representative said, “I question the figures because, among other things, they appear to be on a 100 percent cash basis.” Your investigations revealed the following additional data at December 31, 2018.

  1. Of the $1,215,000 in total spa fees collected in 2018, $142,000 was for services performed in 2017.