Question

14.       The following is selected information from J Corporation for the fiscal year ending October 31, 2008.

Cash received from customers                                                          $300,000

Revenue earned                                                                                   380,000

Cash paid for expenses                                                                        170,000

Cash paid for computers on November 1, 2007 that will be used

   for 3 years (annual depreciation is $16,000)                                     48,000

Expenses incurred, not including any depreciation                             200,000

Proceeds from a bank loan, part of which was used to pay for

     the computers                                                                                  100,000

Based on the accrual basis of accounting, what is J Corporation’s net income for the year ending October 31, 2008?

Use the following information for questions 15–16.

Sheepskin Company had the following transactions during 2008.

Sales of $5,500 on account

Collected $2,225 for services to be performed in 2009

Paid $600 cash in salaries

Purchased airline tickets for $255 in December for a trip to take place in 2009

15.     What is Sheepskin’s 2008 net income using accrual accounting?

a.   $3,875

b.   $5,875

c.   $4,900

d.   $3,625

16.     What is Sheepskin’s 2008 net income using cash basis accounting?

     

Answer 1

Answers

• All working forms part of the answer
• Answer 14: = $ 164,000

Revenues earned	$                           380,000.00
Expenses incurred	$                        (200,000.00)
Depreciation expense	$                           (16,000.00)
Net Income based on accrual basis	$                           164,000.00

• Answer 15: Option ‘C’: $ 4,900

Sales revenue	$                               5,500.00
Salaries expenses	$                                 (600.00)
Net Income using Accrual accounting	$                               4,900.00

• Answer 16:

Sales revenue	$                               2,225.00
Salaries expenses	$                                 (600.00)
Tickets purchased	$                                 (225.00)
Net Income using Cash basis accounting	$                               1,400.00