Answer:
John
John's business income, based on a cash basis:
= $42,500
Explanation:
a) Data and Calculations:
Cash received from sales of products $120,000
Four months' rent received
on a leased building, on December 1 $10,000
Total receipts $130,000
Cash paid for expenses
(except rent and interest) $35,000
Rent paid on a leased building
for 18 months beginning December 1 $40,500
Prepaid interest on a bank loan, paid on
November 1, for the next 6 months $12,000
Total expenses $87,500
Income $42,500
b) Under the cash basis, accounting for a business does not differentiate the period the expenses and revenue are incurred. The only issue for consideration is the time cash is exchanged.
