Question

Problem 5-11 (LO. 2) Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2019. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Payment Date Expense Rental of coliseum Cost of goods sold: $25,000 December 21, 2019 Food Souvenirs 30,000 60,000 100,000 $10,000 December 30, 2019 December 30, 2019 January 5, 2020 February 1, 2020 Performers Cleaning the coliseum Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 8-10, 2020. Calculate Duck's net income from the concert for tax purposes for 2019.

Answer 1

Answer :-

Ducks Net Income from the concert for tax purposes for 2019 are as follows :-

Gross Receipts		$300,000
Less :-
Coliseum Rental	$25,000
Food	$30,000
Souvenirs	$60,000
Performers	$100,000
Cleaning Cost	$0
Total Expenses		$215,000
Net income for 2019 (Gross Receipts - Total Expenses)		$85,000

Note :-

In accrual basis of accounting, expenses are recorded when they are incurred not when paid for the Expense. Duck is an Accural Basis Corporation that a reason we record all the Expense except Cleaning Cost . As it mention in question that cleaning is not perform until January 8-10 ,2019 .The Cleaning Expenses are not incurred in 2019 and not even paid in 2019 .So we record Cleaning costs as $0.

We here recorded the Performers Expense because the Expense incurred in 2018 on the date of concert.