Question

During the month of March 2017, Weimar World, a tax-preparation service, had the following transactions. * Billed $496,000 in revenues on credit * Received $164,000 from customers' accounts receivable * Incurred expenses of $194,000 but only paid $87,700 cash for these expenses * Prepaid $22,220 for computer services to be used next month What was the company's accrual basis net income for the month?
Select one:
A. $302,000
B. $264,080
C. $ 41,860
D. $408,300
E. None of the above

Answer 1

Answer:

A. $302,000

Explanation:

The computation of the net income under accrual basis accounting is shown below:

= Billed in revenues on credit - incurred expenses

= $496,000 - $194,000

= $302,000

The prepaid expenses and the received amount would not be considered in the computation part. Hence, ignored it

Only revenues on credit and incurred expenses are considered in the computation part. No other item values would be  taken.