1,301 Consider the following information for McDermottInc. for McDermott recorde

Question

1,301 Consider the following information for McDermottInc. for McDermott recorded revenue of $100,000, of which $15,000 remained uncollected at the end of the year. McDermott incurred $36,000 of operating expenses, of which S16,000 was unpaid at the end of the year. McDermott declared $14,000 in dividends, of which $5,000 was unpaid at the end of the year. Income tax expense is 40% of pretax income. How much net income should McDermott Inc. report on its income statement? A) $21,000 B) $25,000 C) $25,600 D) $38,400

Explanation / Answer

McDermott's Income Statement; $ Revenue           100,000 Less: Operating expenses           (36,000) Net income before tax             64,000 Less: Income tax expenses at 40%           (25,600) Net income after tax             38,400 Note: According to the accrual system of accounting , all revenues and expenses are considered to determine income of the entity irrespective of it's actual receipt or payment. Divided is appropriation of profit not an expenses. Hence it will not be considered in the income statement.

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