Cathy opens a retail store. Her sales during the first year are $ 850,000?, of w
ID: 2403184 • Letter: C
Question
Cathy opens a retail store. Her sales during the first year are $ 850,000?, of which $ 80,000 has not been collected at? year-end. Her purchases are $ 500000. She still owes $ 15000 to her? suppliers, and at? year-end she has $ 65,000 of inventory on hand. She incurred operating expenses of $125,000. At? year-end she has not paid $ 40,000 of the expenses.
a.
Compute her net income from the business assuming she elects the accrual method.
Sales
Cogs
Gross Profit
Operating Expenses
Net Income
b.
Compute her net income from the business assuming she elects the cash method.
Sales
Cogs
Gross Profit
Operating Expenses
Net Income
c.
a.
Compute her net income from the business assuming she elects the accrual method.
Sales
Cogs
Gross Profit
Operating Expenses
Net Income
b.
Compute her net income from the business assuming she elects the cash method.
Sales
Cogs
Gross Profit
Operating Expenses
Net Income
c.
Would paying the $ 40,000she owes for operating expenses before? year-end change her net income under accrual method of? reporting? under the cash?method?
Explanation / Answer
Answer
a ) compute of net income under accrual basis
sales = 850000
less purchases = 500000
less ending inventory = 65000 = 435000
operating expences = 125000
net operating income = 130000
b ) computation of net income under cash basis
sales = 770000
less purchases = 485000
less ending inventory = 50000 = 435000
operating expences = 85000
net operating income = 250000
c) the payment of 40000 operative expenses the net income under accrual method does not change
but the net income under cash basis
= 250000 - 40000
= 210000
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