Question

Betson, Inc. had the following transactions for September: 1. Collected a $46,000 payment in advance for work to be performed in October. 2. Paid $6,000 for rent covering September through November 3. Performed services, received 25% now and billed customer for the rest. 4. Incurred utility charges of $3,000; paid some now and will pay the rest in October 5. Collected $8,000 of previous billing to customer (from M3) Betson's management calculates net income under both cash basis and accrual basis. Using the method which is GAAP (you should know which this is), Betson reported just $10,000 of net income, while Betson reported $50,000 of net income under the non-GAAP method, How much of the utility bill was paid in transaction #4?

Answer 1

Solution:

Income for september under accrual basis = $10,000

Service revenue under accrual basis in september under transaction 3= Net income + Rent expense + Utility charges = $10,000 + ($6,000/3) + $3,000 = $15,000

Total cash collected in september = $46,000 + ($15,000*25%) + $8,000 = $57,750

Net income reported under cash basis = $50,000

$57,750 - Rent payment - Utility payment = $50,000

$57,750 - $6,000 - Utility payment = $50,000

Utility payment under transaction 4 = $1,750