Question

Selma operates a contractor's supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2015, Selma had cash receipts of $1.4 million, which included $200,000 collected on accounts receivable from 2014 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2015, she had $250,000 in accounts receivale from customers, all from 2015 sales.
a. Compute Selma's accrual basis gross receipts for 2015
b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2014 was $1.3 million. At the end of 2014, she had merchandise on hand with a cost of $150,000. At the end of 2015, the cost of merchandise on hand was $300,000. Compute Selma's gross income from merchandise sales for 2015

Answer 1

Answer:

A.$1,350,000

B.$ 200,000

Explanation:

Selma

a.

Selma's accrual basis gross receipts for 2015 will be ;

Amount of Cash received by Selma $1,400,000

Less:

Accounts receivable collected (200,000)

Bank loan proceed(100,000)

Add: Ending accounts receivable 250,000

Gross receipts $1,350,000

b.Selma's gross income from merchandise sales for 2015 will be :

Gross receipts brought forward(A) $1,350,000

Cost of goods sold:

Selma Purchases$1,300,000

Inventory at the beginning 150,000

Ending inventory(300,000)

Gross income$ 200,000

(1,350,000-1,150,000)

(1,300,000+150,000-300,000)

=1,150,000