Question

Brief Exercise 1-1 (Algo) Accrual accounting [LO1-2] Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers, $290,000; Cash paid for rent, $30,000; Cash paid to employees for services rendered during the year, $110,000; Cash paid for utilities, $40,000. In addition, you determine that customers owed the company $50,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $1,000 at year-end, and the rent payment was for a two-year period. Calculate accrual net income for the year.

Answer 1

Answer:

Net Income for the year is $174,000

Explanation:

Net Income Calculation for the year is done below:

Particulars                                                            $

Revenues (290,000 + 50,000)                      340,000

Less: Rent (30,000 / 2)                                    (15,000)

Less: Salaries                                                   (110,000)

Less: Utilities (40,000 + 1,000)                        (41,000)

Net Income                                                        174,000

Please note the following with regard to the calculation done above:

• Revenue includes both the cash collected from customers and cash owed by the customers, which received later on at the end of the year.
• Rent has been divided by two, this is due to the fact that calculation of  net income is done for the current period so only one year rent is taken.
• Utilities include cash paid for utilities and the amount company owed to gas & electric company.