Question

On December 31, 2016, Krug Company reported pretax income of $300,000 prior to the following adjusting entries: Depreciation expense: $38,000; Accrued sales revenue: $36,000; Accrued expenses: $17,000; Used insurance: $4,000; the insurance was initially recorded as prepaid. Rent revenue earned: $2,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. How much is Krug's pretax income after the adjusting entries

Answer 1

Answer: $279,000

Explanation:

Accrued revenue and expenses should be accounted for because they have been realized and incurred in the current period.

Used insurance and depreciation should be accounted for as the expenses they are and rent revenue earned should be treated as revenue.

Pretax income after adjustments:

= Pretax income + Accrued sales revenue + rent revenue - Depreciation - Accrued expenses - Insurance

= 300,000 + 36,000 + 2,000 - 38,000 - 17,000 - 4,000

= $279,000