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30 August, 17:55

Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual-basis net income was: Multiple Choice $18,000.

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  1. 30 August, 18:07
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    The question is incomplete the answer is $29000

    Explanation:

    The question only has the first option A. which is $18000. we know that when you are finding the net income it contains of Revenue minus operating expenses but on accrual basis we also include differed and accrued expenses so here we will be identifying each transaction in where it fits.

    $42000 tailoring fees are revenue as this is a Tuxedo custom shop;

    $14000 are expenses as they stated

    Depreciation is an expense of $2000

    Accounts receivable is an asset that increases on the debit side therefore it will be added to income for the tuxedo shop in which its value is $1500 and we are told that they increased.

    Supplies increased so we will also add them to income at a value of $4000

    Accrued liabilities will increase on the credit side therefore will be subtracted on the income received as they are liabilities which amount to $2500. Therefore accrual basis net income = $42000-$14000-$2000+$4000+$1500-$2500

    =$29000 which is the accrual basis net income.
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