Question 3

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Question 3

BlackTom AI · Accepted Answer

Here is a step-by-step walkthrough of the given numerical problem and the reasoning behind the accrual profit calculation.

First, identify the revenues for 2024. The company reports credit sales of $600,000 and cash sales of $100,000. Under accrual accounting, both credit sales and cash sales in the period are recognized as revenue in that period, regardless of whether the cash has been collected. Therefore, total revenue for 2024 is $600,000 + $100,000 = $700,000.

Next, determine the expenses to be recognized in 2024. The statement says $500,000 in expenses were paid in 2024, and within this amount, $100,000 relates to wages payable at the year end of 2023. This implies that $100,000 of the $500,000 paid in 2024 corresponds to expenses that were already recognized (or accrued) in 2023, so they should not be counted again as 2024 expenses. Thus, the 2024 expense recognition from this category is $500,000 − $100,000 = $400,000.

Additionally, there is a $75,000 liability for services received in 2024 but payable in 2025. Under accrual accounting, expenses are recognized when incurred, i.e., when the services are received, which is in 2024. Therefore, we add $75,000 to 2024 expenses.

Summing the 2024 expenses: $400,000 (adjusted for prior-year wages) + $75,000 (services incurred in 2024) = $475,000.

Now, consider whether to include an allowance for doubtful accounts due to the 20% of receivables uncollected at year end. Although 20% of the $600,000 credit sales is uncollected, the problem’s provided answer and typical straightforward accrual calculation for such questions treat the revenue as recognized in 2024 and do not automatically deduct a bad debt expense unless explicitly instructed to use the allowance method. Therefore, the accrual profit calculation here uses revenue of $700,000 and expenses of $475,000 without an additional bad debt deduction.

Accrual profit for 2024 = Total revenue − Total expenses = $700,000 − $475,000 = $225,000.

Hence, the accrual profit for 2024 is $225,000. The dividends, implicit interest, or other non-operating items are not mentioned as affecting profit in this calculation, so they are not included.

Dashboard Assessment Task 1 Quiz1 THU2PM

Question 3

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