Question

Listed below are several transactions that took place during the second and third period of operations for the ABC Corporation:

	Period 2		Period 3
Amounts billed to customers for services rendered	€175,000		€225,000
Cash collected from credit customers	130,000		200,000
Cash disbursements:
Payment of rent	40,000		-
Salaries paid to employees for services rendered during the period	70,000		80,000
General expenses (incurred during the period)	15,000		20,000
Advertising	7,500		17,500

Additional information:

• ABC incurred advertising costs of €12.500 in period 2, owed the advertising agency €2.500 at the end of period 1, and there were no liabilities at the end of period 3.
• There were no anticipated bad debts on receivables.
• The rent payment was for a two-year period, periods 2 and 3 (linearly allocated)  

The net income for period 2 is:

Select one:

a. 57,500

b. 65,500

c. 37,500

d. 32,500

e. 62,500

The net income for period 3 is:

Select one:

a. 115,000

b. 133,000

c. 122,500

d. 102,500

e. 95,000

Answer 1

Income Statement
	Period 2	Period 3
Revenue	€         175,000	€      225,000
Expenses
Rent Expense	€            20,000	€        20,000
Salaries Expense	€            70,000	€        80,000
General Expense	€            15,000	€        20,000
Advertising Expense	€            12,500	€        10,000
Total Expenses	€         117,500	€      130,000
Net Income	€           57,500	€        95,000

1.
Period 2 Net Income
Answer is a. 57,500

2.
Period 3 Net Income
Answer is e. 95,000

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