Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2011?

Question

Quizplus · Accepted Answer

To calculate net income on an accrual basis, we add up all revenues earned and subtract all expenses incurred during the year, regardless of whether cash was received or paid out. From the information given, we can calculate Alpha-Beta-Gamma Corporation's net income as follows:
Total revenues: 
$500,000 (sales, all on account) 
+ $4,000 (interest, received in cash) 
+ $2,000 (rent, earned but not yet received) 
= $506,000
Total expenses: 
$240,000 (cost of goods sold, all on account) 
+ $50,000 (salaries and wages, paid in cash) 
+ $20,000 (rent, paid in cash) 
+ $10,000 (utilities, paid in cash) 
= $320,000
Net income: 
$506,000 (total revenues) 
- $320,000 (total expenses) 
= $186,000 
- $52,000 (income tax, accrued and paid) 
= $134,000. Therefore, the correct answer is B.

Based on the Accrual Basis of Accounting, What Is Alpha-Beta-Gamma