Question

c Inventory 680 Gain on sale 400 Sales revenue 1,080 HD accounts receivable 1,080 Sales revenue Gain on sale e n zo bolno sono 680 400 On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $3,206,000. The company provided $7,600,000 of services in June and received full payment in July, Royal also incurred expenses of $3,032,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $589,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting? Cash alolden Arcu Cash Basis Accrual Basis rasis bloco $ 4,568,000 $ 4,568,000 Iunieve - 7,00 . S 7,774,000 $ 3,979,000 $ 7,600,000 $4,568,000 ilding and $ 7.600.000 $ 3.979,000 July uve- 7,600,000 Shades A. Option a. 000.00 B. Option b. July exp - az C. Option e. 7,600,00000.2 2.5 . Option d. 100 "ummy Foods purchased a two-year fire and extended coverage insurance policy on August 18, and charged the $3,120 premium to Insurance expense. At its December 31, 2018, year- Yummy Foods would record which of the following adjusting entries? August 2012 repaid insurance Insurance expense Tot 650 Dr Insurance urb CrCash Ban 3 650 650 surance expense naid insurance AJE Due 31, 2018 2,470

Answer 1

Statement of Income of the Company for 2 months ended on 31st July Particulars Note Accrual Basis Cash Basis Incoe from services 7600000 7600000 Expenses 3032000 0 Income of the company before income taxes 4568000 7600000 Notes:- 1. Services rendered in June and hence, the same considered as June income and therefore included in June income under accral basis. Also, as the cash received in July, the income also considered under cash basis in July. 2. Expenses incurred in June and hence considered under accrual basis. However, as it was paid in August, i.e, after the 2 months period, the same not considered for June and July period. 3. Cash introduced by share holders and dividend paid to them are not revenue items and hence ignored for arriving at income for the period.