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rosijanka [135]
3 years ago
14

Savor Co. had $100,000 in accrual basis pretax income for the year. At year-end, accounts receivable had increased by $10,000 an

d accounts payable had decreased by $6,000 from their prior year-end balances. Under the cash basis of accounting, what amount of pretax income should Savor report for the year?
a. $104,000b. $84,000c. $116,000d. $96,000
Business
1 answer:
Sladkaya [172]3 years ago
8 0

Answer:

B) $84,000

Explanation:

Since accounts receivable increased by $10,000, it means that the cash basis pretax income is $10,000 lower than the accrual basis pretax income. The company sold the goods or services but it hasn't received the cash them yet.  

Since accounts payable decreased by $6,000, it means that the cash basis pretax income is $6,000 lower than the accrual basis pretax income. The company acquired debt in year 1 but it paid it during year 2, therefore it used cash during year 2 to pay for debt that corresponded to year 1.

If we add both negative adjustments; (-$10,000) + (-$6,000) = -$16,000

$100,000 - $16,000 = $84,000

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Answer:

                            McDade Company

                  Comparative Income Statement

       For the Years Ended December 31, 2012 and 2011

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Sales                      $16,800,000   $15,000,000      $1,800,000      12%

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Other revenue           $256,950         $225,000            $31,950    14.2%

EBT                          $2,566,950     $2,725,000        ($158,050)   -5.8%

Income taxes           ($1,413,000)    ($1,500,000)        ($87,000)   -5.8%

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