D. Same as (a)y except the M Tmakes an election under 8 4or(c). 1-27 Accrual ver

Question

D. Same as (a)y except the M Tmakes an election under 8 4or(c). 1-27 Accrual versus Cash Method of Accounting. D operates a hardware store. For 2016, D's first year of operation, D reported the following items of revenue and expense Cash receipts Purchase of goods on credit... Payments on payables $140,000 90,000 82,000 By year-end, D had unsold goods on hand with a value of $25,000. a. Using the cash method of accounting, compute D's taxable income for the year. b. Using the accrual method of accounting, compute D's taxable income for the year. c. Which method of accounting is required for tax purposes? Why?

Explanation / Answer

Answer =A) CALCULATION OF THE TAXABLE INCOME USING THE CASH METHOD Amount   Cash Receipts $             1,40,000 Less: cash Paid against purchase $                82,000 Net Revenue as per the cash Methtod $                58,000 Answer =B) CALCULATION OF THE TAXABLE INCOME USING THE ACCRUAL METHOD Amount   Amount   Revenue (Cash Receipts ) $              1,40,000 Cost of Goods Sold Opening Stock $                          -   Add: Purchases $                90,000 Less: Closing Stock $                25,000 Cost of Goods Sold $                 65,000 Net Revenue $                 75,000 Answer =C) Cash Method is good for tax purpose because it have low income and low taxes.

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