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Julio Estela started a small boat repair service company during the current year. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers in the winter months. At the end of the year, he prepared the following statements based on information stored in a large filing cabinet:

ESTELA COMPANY
Profit for the Current Year
Service fees collected in cash during the current year					$	55,000
Cash dividends received						10,000
Total						65,000
Expense for operations paid during the current year	$	22,000
Cash stolen		500
New tools purchased during the current year (cash paid)		1,000
Supplies purchased for use on service jobs (cash paid)		3,200
Total						26,700
Profit					$	38,300
Assets Owned at the End of the Current Year
Cash in checking account					$	29,300
Building (at current market value)						32,000
Tools and equipment						18,000
Land (at current market value)						30,000
Stock in ABC Industrial						130,000
Total					$	239,300

The following is a summary of completed transactions:

a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company:

Building	$21,000	Land	$20,000
Tools and equipment	17,000	Cash	1,000

b. Earned service fees during the current year of $87,000; of the cash collected, $20,000 was for deposits from customers on work to be done by Julio in the next year.

c. Received the cash dividends on shares of ABC Industrial stock purchased by Julio Estela six years earlier (the stock was not owned by the company).

d. Incurred operating expenses during the current year of $61,000.

e. Determined amount of supplies on hand (unused) at the end of the current year as $700.

Required:

1. On what basis did Julio prepare the income statement?

2. Reconstruct the correct entries under accrual accounting principles and post the effects to T-accounts.

3. Prepare an accrual-based income statement, statement of stockholder's equity (only one shareholder), and a classified balance sheet.

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