Question

During 2018, Towson Company had credit sales of $44,000 and cash sales of $11,000. In 2018 Towson collected $31,000 of accounts receivable resulting from sales on credit. Towson incurred operating expenses of $59,000; of this amount, $42,900 was paid in 2018, and the remaining balance represented a liability at year-end. In addition to these operating expenses, Towson also purchased for cash a three-year insurance policy on January 1, 2018. The cost of this policy was $3,000. What is Towson's 2018 accrual basis net income or loss? Enter a loss as a negative number.

Answer 1

Answer: -($5,000)

Explanation:

Given that,

Credit sales = $44,000

Cash sales = $11,000

Accounts receivable = $31,000

operating expenses = $59,000 of this amount, $42,900 was paid in 2018 an remaining represented a liability at year-end.

Cost of policy = $3,000

Sales = Credit sales + Cash sales

         = $44,000 + $11,000

         = $55,000

Insurance Expenses = $\frac{1}{3}\times3,000$

                                  = $1,000

Net Loss = Sales - operating expenses - Insurance Expenses

                    = $55,000 - $59,000 - $1,000

                    = -($5,000)