Question

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows:
Cash collected from customers, $300,000
Cash paid for rent, $32,000
Cash paid to employees for services rendered during the year, $112,000
Cash paid for utilities, $42,000
In addition, you determine that customers owed the company $52,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $1,200 at year-end, and the rent payment was for a two-year period.
Calculate accrual net income for the year.

Answer 1

Answer:

Harman-Kardon Consulting Company

Calculating the Accrual Net Income:

= $164,800

Explanation:

a) Data and Calculations:

Sales Revenue:

Cash collected from customers = $300,000

Accounts receivable at year end      52,000

Total Sales Revenue =                  $352,000

Utilities Expense:

Cash paid for utilities = $42,000

Utilities payable                  1,200

Total utilities expense  $43,200

Accrual net income:

Sales revenue  $352,000

Expenses:

Rent       32,000

Salaries 112,000

Utilities  43,200 (187,200)

Net income      $164,800

b) Accrual net income is determined on the accrual basis of accounting.  This basis takes into account all accrued expenses and revenue, all prepaid expenses and revenue received in advance, and provides for depreciation expenses, unlike the cash basis of accounting.