The following data relate to Swift Company for the year ended December 31, 2010.
ID: 2358272 • Letter: T
Question
The following data relate to Swift Company for the year ended December 31, 2010. Swift Company uses the accrual basis.Sales on credit $250,000
Cost of inventory sold on credit $170,000
Collections from customers $220,000
Purchase of inventory on credit $150,000
Payment for purchases $140,000
Selling expenses (accrual basis) $40,000
Payment for selling expenses $45,000
Which of the following amounts represents income for Swift Company for the year ended December 31, 2010?
1. $30,000
2. $35,000
3. $50,000
4. $60,000
5. $40,000
Explanation / Answer
Sales on credit
250,000
Less Cost of inventory
170,000
Equals Gross Profit
80,000
Less selling expenses
40,000
Equals net income
40,000
Answer is 5. 40,000
Since they are using accrual accounting, expenses are recognized when incurred, not paid, and revenues are recognized when earned, not when the money is received.
Sales on credit
250,000
Less Cost of inventory
170,000
Equals Gross Profit
80,000
Less selling expenses
40,000
Equals net income
40,000
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