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10 November, 20:30

Primo Industries collected $105,000 from customers in 2014. Of the amount collected, $25,000 was from services performed in 2013. In addition, Primo performed services worth $40,000 in 2014, which will not be collected until 2015. Primo Industries also paid $72,000 for expenses in 2014. Of the amount paid, $30,000 was for expenses incurred on account in 2013. In addition, Primo incurred $42,000 of expenses in 2014, which will not be paid until 2015. (a) Compute 2014 cash-basis net income. Cash-basis net income $ (b) Compute 2014 accrual-basis net income. Accrual-basis net income $

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  1. 10 November, 20:36
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    a. $33,000

    b. $36,000

    Explanation:

    The computation of the net income under each method is shown below:

    1. Cash Basis:

    Net income = Collection from customers - expenses

    = $105,000 - $72,000

    = $33,000

    2. Accrual basis:

    Net income = (Collection from customers - last year service performed + current year service performed) - (Total expenses - last year expenses + current year expenses)

    = ($105,000 - $25,000 + $40,000) - ($72,000 - $30,000 + $42,000)

    = $120,000 - $72,000 + $30,000 - $42,000

    = $36,000
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