Cash flows during the first year of operations for the Harman-Kardon Consulting

Question

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers, $340,000; Cash paid for rent, $40,000; Cash paid to employees for services rendered during the year, $120,000; Cash paid for utilities, $50,000.

In addition, you determine that customers owed the company $60,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $2,000 at year-end, and the rent payment was for a two-year period. Calculate accrual net income for the year.

Explanation / Answer

Cash received from customers = $340,000. In addition, the customers owed the company $60,000. So total sales to customers on accrual basis was $340,000+60,000 = $400,000 Cash paid for rent was for 2 years, so just for this first year, the rent expense is 40000/2 = $20,000 Salary expense = $120,000 Utility expense = cash paid + what is still owed = 50,000+2000=$52,000 So total costs = 20,000(for rent)+120,000(salary expense)+52,000(utility)=$192,000 Therefore accrual income before tax = 400,000-192,000=$208,000 Hope this helped.

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