Question

Problem 4-15 (Algorithmic) (LO. 2) Al is a physician who conducts his practice as a sole proprietor. During 2019, he received cash of $558,400 for medical services. Of the amount collected, $40,800 was for services provided in 2018. At the end of 2019, Al held accounts receivable of $89,700, all for services rendered in 2019. In addition, at the end of the year, Al received $17,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2020. a. Compute Al's gross income for 2019 using the cash basis of accounting. $ b. Compute Al's gross income for 2019 using the accrual basis of accounting. C. Advise Al on which method of accounting he should use. Al should use the of accounting so that he will not have to pay income taxes on the

Answer 1

A):- AIGross Income For 2019 using Cash Basis of Accounting

Particulars	Amount($)
For Medical Services	558400
Advance From HMO	17000
Gross Income For 2019	$575400

B):- AI’s Gross Income For 2019 using Accrual Basis of Accounting

Particulars	Amount($)
For Medical Services Rendered In 2019. (See working note)	607,300
Gross Income for 2019	607,300

Working Note :

Account receivables Account

Particulars	Debit	Particulars	Credit
Opening Balance (assumed that all money received for 2018 is opening balance for 2019)	40,800	Cash Received During 2019	558,400
For Medical Services Rendered In 2019 (Balancing Figure)	607,300	Closing Balance	89,700
Total	648,100	Total	648,100

C):- AI should use Cash method of accounting for computing so that he will not have to pay income taxes on the $31900 (607300-575400)