Purchase Solution

Matt Morgan: Compute net income using cash and accrual basis

Not what you're looking for?

Ask Custom Question

On December 31, 2009, Matt Morgan completed the first year of operations for his new computer
retail store. The following data were obtained from the company's accounting records:

Sales to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $197,000
Collections from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000
Interest earned and received on savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,500
Amounts paid to suppliers for inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,000
Wages owed to employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Wages paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Utility bill owed: to be paid next month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100
Interest due at 12/31 on loan to be paid in March of next year . . . . . . . . . . . . . . . . . . . . . . 1,200
Amount paid for one and one-half years' rent, beginning Jan. 1, 2009 . . . . . . . . . . . . . . . . . 17,500
Income taxes owed at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

1. How much net income (loss) should Matt report for the year ended December 31, 2009,
according to (a) cash-basis accounting and (b) accrual-basis accounting?

2. Which basis of accounting provides the better measure of operating results for Matt?

Purchase this Solution
Solution Summary

The expert computes the net income using cash and accrual basis.

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

View More Free Quizzes
Related BrainMass Solutions

  • Net Income for Business Expenses

    Compute her net income from the business assuming she elects the accrual method. b. Compute her net income from the business assuming she elects the cash method. c.

  • Cash Basis Versus Accrual Basis

    The transactions is this posting show how they are handled using the accrual basis of accounting. Net income or net loss is also shown using the accrual basis.

  • Accounting Concepts and Journal Entries

    Amount of Revenue (Expense) for July 200_ Date-- Revenue (Expense)-- Accrual-Basis Amount Compute July net income (loss) under the accrual basis of accounting. It is now July 31st. You are continuing to advise Dr.

  • Company Gain and Interest

    Compute Kelly's interest income for 2008 We will use accrual method pf accounting Net PV of sales = 250,000 + 692,625 = 942,625 Net PV of the property = 400,000 - 40,000 = 360,000 Net Gain = 942,625 - 360,000 - 10,000 = $572,625 <---- gain

  • Annual Rate of Return Cash Payback Period, and Net Present Value

    Compute (1) the cash aybak period and (2) the annual rate of return of the proposed capital expenditure. b. Using the discounted cash flow technique, compute the net present value. Please see attached file for answers.

  • Transactions using accrual basis of accounting

    Amount of Revenue (Expense) for July 200_ Date-- Revenue (Expense)-- Accrual-Basis Amount Compute July net income (loss) under the accrual basis of accounting. On July 1st, he paid out $1,200 in office rent for the month of July.

  • Operating Activity for Cash Flows

    This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions.

  • Cash to accrual basis

    Accrual basis net income exceeds cash basis net income. C. Accrual basis interest revenues are less than cash collections from borrowers. D. Accrual basis net income is less than cash basis net income. 1. B.

  • Differentiate between Cash-Basis versus Accrual-Basis

    Contrast the impact of cash versus accrual accounting on net income of a first year business with substantial sales on account and no liabilities.

View More Related Solutions