Question

On June 1, Langhe, Corp began operating a tax service company with an initial cash investment by shareholders of $4.030,000. The company provided $7,000,000 of services in June and received full payment in July. Langhe also incurred expenses of $2129,000 in June that were paid in August. During June, Langhe paldits 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 a. b. Cash Basis $4,871,000 $8,901,000 $7,000,000 $7,000,000 Accrual Basis $4,871,000 $4,282,000 $4,871,000 $4,282,000 d.

Answer 1

Answer:- c. $7,000,000 (Cash Basis) & 4,871,000 (Accrual basis)

Computation:-

Cash Basis :- Income before Income Tax = $7,000,000 (Service money received in July)

• Cash Investment does not effect the Income Statement, it goes in balance sheet
• Expenses of $2,129,000 was paid in August, so not to be reflected in July 31.
• Cash dividend paid $589,000 does not come in Income before Income Tax.

Accrual Basis:- Service provided in June = $7,000,000

Less: Expense = $2,129,000

Income before Income Tax = $ 4,871,000

• Cash Investment does not effect the Income Statement, it goes in balance sheet
• Cash dividend paid $589,000 does not come in Income before Income Tax.