The activity of Sterling Company for the month of April is presented below:
$\begin{array} { l }
\text { Cost of goods sold}&\$ 62,000\
\text {Cash purchases of inventory }&\$25,000 \
\text {Credit purchases of inventory }&\$50,000 \
\text {Cash paid for credit purchase of inventory }&\$22,000 \
\text { Cash dividend paid}&\$7,000 \
\text { Wages earned and paid}&\$14,000 \
\text {Wages earned and unpaid }&\$ 2,000\
\text { Rent paid for April, May and June}&\$6,000 \
\end{array}$

Using the accrual basis of accounting,the total expenses for Sterling Company for the month of April is ________.
A) $62,000
B) $78,000
C) $80,000
D) $86,000

Question

The activity of Sterling Company for the month of April is presented below:
$\begin{array} { l  }
 \text { Cost of goods sold}&\$ 62,000\
 \text {Cash purchases of inventory }&\$25,000 \
 \text {Credit purchases of inventory }&\$50,000 \
 \text {Cash paid for credit purchase of inventory }&\$22,000 \
 \text { Cash dividend paid}&\$7,000 \
 \text { Wages earned and paid}&\$14,000 \
 \text {Wages earned and unpaid }&\$ 2,000\
 \text { Rent paid for April, May and June}&\$6,000 \
\end{array}$

Using the accrual basis of accounting,the total expenses for Sterling Company for the month of April is ________.
A) $62,000
B) $78,000
C) $80,000
D) $86,000

Quizplus · Accepted Answer

Under the accrual basis of accounting, expenses are recognized when they are incurred, not necessarily when they are paid. For Sterling Company, the total expenses for April include: Cost of goods sold ($62,000), Wages earned (both paid $14,000 and unpaid $2,000, totaling $16,000), and the portion of the rent that applies to April (one-third of $6,000, since the rent is for April, May, and June, which is $2,000). Cash and credit purchases of inventory are not expenses themselves but rather the acquisition of assets; the expense is recognized as cost of goods sold. Cash paid for credit purchases is a settlement of a liability, not an expense. Cash dividends paid are not an expense but a distribution of earnings. Therefore, the total expenses for April are $62,000 (cost of goods sold) + $16,000 (wages) + $2,000 (rent for April) = $80,000.

The Activity of Sterling Company for the Month of April