Primo Industries collected $105,000 from customers in 2019. Of the amount collected, $25,000 was for services performed in 2018. In addition, Primo performed services worth $40,000 in 2019, which will not be collected until 2020. Primo Industries also paid $72,000 for expenses in 2019. Of the amount paid, $30,000 was for expenses incurred on account in 2018. In addition, Primo incurred $42,000 of expenses in 2019, which will not be paid until 2020. (a) Compute 2019 cash-basis net income. Cash-basis net income $enter the cash-basis net income (b) Compute 2019 accrual-basis net income. Accrual-basis net income $enter the accrual-basis net income

Question

Stanley Burns

Business

17 September, 21:58

Primo Industries collected $105,000 from customers in 2019. Of the amount collected, $25,000 was for services performed in 2018. In addition, Primo performed services worth $40,000 in 2019, which will not be collected until 2020. Primo Industries also paid $72,000 for expenses in 2019. Of the amount paid, $30,000 was for expenses incurred on account in 2018. In addition, Primo incurred $42,000 of expenses in 2019, which will not be paid until 2020. (a) Compute 2019 cash-basis net income. Cash-basis net income $enter the cash-basis net income (b) Compute 2019 accrual-basis net income. Accrual-basis net income $enter the accrual-basis net income

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Answers (1)

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Aurora · Answer 1

a. $33,000

b. $36,000

Explanation:

The computation is shown below:

a. Cash basis net income

= Collection from customers - expenses paid

= $105,000 - $72,000

= $33,000

b. Accrual basis net income

= Service performed - expenses incurred

where,

Service performed is

= $105,000 - $25,000 + $40,000

= $120,000

And, the expenses incurred is

= $72,000 - $30,000 + $42,000

= $84,000

So, the net income under accrual basis is

= $120,000 - $84,000

= $36,000