Question

Haskins and Jones, Attorneys-at-Law, maintains its books on a cash basis. During 2021, the law firm collected $640,000 for services rendered to its clients and paid out $431,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred service revenue, and accrued liabilities: January 1, 2021 December 31, 2021 Accounts receivable $ 81,000 $ 76,000 Prepaid insurance 6,400 8,300 Prepaid rent 11,100 9,000 Deferred service revenue 11,100 13,400 Accrued liabilities (for various expenses) 14,100 18,900 In addition, 2021 depreciation expense on office equipment is $31,500. Required: Determine accrual basis net income for 2021.

Answer 1

Answer:

$165,300

Explanation:

The question is to determine the accrued net income. It is determined by taking the cash basis income and make the necessary additions and subtractions based on the information in the question.

This is carried out as follows

Cash Basis Income ($640,000-$431,000)                                 $209,000

Add:

The Prepaid insurance increase (8,300-6,400)                          $1,900

Subtract:

Depreciation                                                                                 ($31,500)

Decrease in receivable accounts (81,000-76,000)                    ($5,000)

Decrease in rent prepaid     (11,000-9000)                                 ($2,000)

increase in unearned service fee revenue  (13400-11100)         ($2,300)

Increase in accrued liability   (18,900-14,100)                             ($4,800)                                          

Accrued basis net income                                                         $165,300