Question

Clair opens a retail store. Her sales during the first year are $700,000, of which $80,000 has not been collected at year-end. Her purchases are $300,000. She still owes $35,000 to her suppliers, and at year-end she has $75,000 of inventory on hand. She incurred operating expenses of $170,000. At year-end she has not paid $40,000 of the expenses. Read the requirements. Requirements a. and b. Compute her net income from the business assuming she elects the accrual method. Then compute her net income from the business assuming she elects the cash method. Accrual method i Requirements - X Sales Cost of goods sold Gross profit Operating expenses Net income a. Compute her net income from the business assuming she elects the accrual method. b. Compute her net income from the business assuming she elects the cash method. Would paying the $40,000 she owes for operating expenses before year-end change her net income under accrual method of reporting? under the cash method? Enter any number in the edit fields and then click Check Answer. Print Print parts remaining Done Done Check Answer

Answer 1

a.		Accrual Method
	Sales	$700,000
	Cost of goods sold	$225,000	($300,000 - $75,000)
	Gross Profit	$475,000
	Operating expenses	$170,000
	Net income	$305,000
b.		Cash Method
	Sales	$620,000	($700,000 - $80,000)
	Cost of goods sold	$265,000	($300,000 - $35,000)
	Gross Profit	$355,000
	Operating expenses	$130,000	($170,000 - $40,000)
	Net income	$225,000
c
		Accrual Method	Cash Method
	Sales	$700,000	$620,000
	Cost of goods sold	$225,000	$265,000
	Gross Profit	$475,000	$355,000
	Operating expenses	$170,000	$170,000
	Net income	$305,000	$185,000