Question

Primo Industries collected $106,000 from customers in 2017. Of the amount collected, $25,600 was for services performed in 2016. In addition, Primo performed services worth $40,700 in 2017, which will not be collected until 2018. Primo Industries also paid $73,700 for expenses in 2017. Of the amount paid, $30,900 was for expenses incurred on account in 2016. In addition, Primo incurred $42,000 of expenses in 2017, which will not be paid until 2018.(a) Compute 2014 cash-basis net income. Cash-basis net income $ (b) Compute 2014 accrual-basis net income. Accrual-basis net income $

Answer 1

Answer:

a. $32,300

b. $36,300

Explanation:

The computation of the net income under each method is shown below:

a. Cash basis

Net income = Revenues - expenses

                   = $106,000 - $73,700

                   = $32,300

b. Accrual basis

Net income = (Collection - service performed collection last year + service performed) - (expenses incurred in current year - expenses incurred in last year + additional expenses incurred in current year)

=($106,000 - $25,600 + $40,700) - ($73,700 - $30,900 + $42,000)

= $121,100 - $84,800

= $36,300