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16 January, 13:13

ABC Company keeps their accounting records on the cash basis. During the year, ABC received $260,000 from clients, and ABC paid $85,000 to cover operating expenses. Account balances as of the dates given are as follow:

January 1 December 31

Accounts Receivable $24,000 $52,000

Accrued Liabilities $56,000 $40,000

Unearned Service Revenue $35,000 $65,000

Prepaid Expenses $26,000 $28,000

In addition, depreciation expense for the current year is $16,000.

Accrual basis net income is:

a. $181,000

b. $145,000

c. $201,000

d. $165,000

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Answers (1)
  1. 16 January, 16:49
    0
    a. $181,000

    Explanation:

    The Income Statement consists of Revenue and Expenses recorded on Accrual Basis. The Accrual Basis of Accounting states that Revenue and Expenses must be recorded as and when they Occur or Incur not when cash is paid or received.

    Calculation of Net Income will thus be as follows:

    Revenue Received $260,000

    Unearned Revenue ($65,000-$35,000) $30,000

    Total Revenue $290,000

    Less Expenses:

    Expenses ($85,000+$26,000-$28,000) $83,000

    Depreciation $16,000

    Net Income $181,000
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