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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 $

Respuesta :

Answer:

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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