Question

On December 31, 2016, Fall Company prepared adjusting entries that included the following items: Depreciation expense: $31,000. Accrued sales revenue: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. If Fall Company reported pretax income of $120,000 prior to the adjusting entries, how much is Fall's pretax income after the adjusting entries

Answer 1

Answer: $104,000

Explanation:

Pretax income after the Adjustment = Pretax income before adjustments + Accrued sales revenue + Rent revenue earned - depreciation - accrued expenses - used insurance

= 120,000 + 29,000 + 7,000 - 31,000 - 12,000 - 9,000

= $104,000

The above were all period costs and so needed to be accounted for in the income.