On June 1, Royal Corp. began operating a service company with an initial cash in

Question

On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $3,900,000. The company provided $7,500,000 of services in June and received full payment in July. Royal also incurred expenses of $3,100,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $820,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting? Cash Basis Accrual Basis $4,400,000 $4,400,000 $8,300,000 $3,580,000 $7,500,000 $4,400,000 $7,500,000 $3,580,000

Explanation / Answer

Cash basis (June and July) Revenue 7,500,000 Expenses 0 Income: 7,500,000 Accrual basis (June and July) Revenues 7,500,000 Expenses 3,100,000 Income: 4,400,000

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