Question

27) In its first year of operations, Bulldog Corporation reports the following: Earned revenues of $100,000 ($42,000 cash received from customers); incurred expenses of $65,000 ($31,000 cash paid toward them); prepaid $50,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is: A) $17,000. B) $35,000. C) $13,000. D) $25,000 E) None of these choices are correct.

Answer 1

Correct Answer for this is option B)35000/-

Income Earning During the year - 100000/-

Expenses for the year is - 65000/-

Net Income/Revenue is - 35000/-

Since it is accrual system of accounting cash received from customer and cash paid for expenses dose not matter for income recognition and profit and loss account. Also any thing paid as pre-paid expenses for next year will not be considered as expenses for the year. There fore 35000 is income for the year. Other things like cash received from customer and expenses paid for the year will be considered in balance sheet prepration and also 50000 will the advance paid for the expenses will be carried forwarded as current assets and written off in next year on occurance of event