Question

Evan Corporation provided consulting services for Kensington Company in 2015. Evan incurred costs of $48,000 associated with the consulting and billed Kensington $72,000. Evan paid $32,000 of its costs in 2015 and the remaining $16,000 in 2016. Evan received $36,000 of its billing in 2015. Kensington paid the remaining $36,000 in 2016. Evan reports on the accrual basis of accounting. How much is Evan’s 2015 and 2016 profit related to the Kensington consulting?

Answer 1

Answer:

2015 - $24,000

2016 - $0

Explanation:

The computation of profit for each year is shown below:

For 2015:

The profit = Service revenue - expenses incurred

                = $72,000 - $48,000

                = $24,000

For 2016:

There is no transaction to record under the accrual basis of accounting. So, the profit is zero

As in accrual basis of accounting, whether cash is received or not the transaction should be reported in the books of accounts