Question

Skysong Industries collected $104,000 from customers in 2020. Of the amount collected, $25,500 was for services performed in 2019. In addition, Skysong performed services worth $38,600 in 2020, which will not be collected until 2021. Skysong Industries also paid $71,700 for expenses in 2020. Of the amount paid, $30,400 was for expenses incurred on account in 2019. In addition, Skysong incurred $42,900 of expenses in 2020, which will not be paid until 2021.(a) Compute 2020 cash-basis net income.
(b) Compute 2020 accrual-basis net income.

Answer 1

Answer:

a. $32,300

b. $32,900

Explanation:

The computation of given question is shown below:

a. Cash basis net income  is

= Collection from customers - Paid expenses  

= $104,000 - $71,700

= $32,300

b. Accrual-basis net income

= Service Performed - Incurred Expenses

where,  

Service performed is

= $104,000 - $25,500 + $38,600

= $117,100

And, the expenses incurred is  

= $71,700 - $30,400 + $42,900

= $84,200

So, the net income under accrual basis is  

= $117,100 - $84,200

= $32,900