Question

You have calculated Net Farm Income (NFI) on a cash basis to be $90,000. Based on the additional information provided answer questions a. and b. • Sale of used combine (capital asset sale): $20,000 • Grain inventories (revenue item)

o Beginning: $9,000

o Ending: $4,000

• Accounts payable (expense item)

o Beginning: $2,000

o Ending: $7,000

1. Calculate Net Farm Income from Operations (NFIO) on a cash basis

2. Calculate Net Farm Income (NFI) on an accrual basis

Answer 1

Sol Information Given Particulars Net Farm Income (NFI) on a cash basis Sale of used combine Beginning Inventory Ending Inventory Beginning Accounts payable Ending Accounts payable Amount $ 90,000 $ 20,000 $ 9,000 $ 4,000 $ 2,000 $ 7,000 a.Calculate Net Farm Income from Operations (NFIO) on a cash basis Particulars Net Farm Income (NFI) on a cash basis Amount Expanation $ 90,000 Since net income on cash basis includes sale of used asset which is not part of operations, $ 20,000 we have deducted to arraive at Net Farm Income from Operations (NFIO) on a cash basis $ 70,000 Less:Sale of used combine Net Farm Income from Operations (NFIO) on a cash basis

b.Calculate Net Farm Income (NFI) on an accrual basis Particulars Net Farm Income from Operations (NFIO) on a cash basis Less: Decrease in inventory (4000-9000) Amount Expanation $ 70,000 We will start with net income on casis as calculated above. Since on account of decrease in inventory, we must have used opening stock rather than paying for goods.Hence Purchase paid will at lessor resulting in excess net income. So we 5,000 removed this to arraive Net income on acrual basis Since on account of Increase in Accounts Payable, which means we haven't paid for good purchased during the period to the extent of increase resulting in excess net income on $ 5,000 cash basis. So we removed this to arraive Net income on acrual basis $ 60,000 S Less:Increase in Accounts Payable (7000-2000) Net Farm Income (NFI) on an accrual basis