Question

Problem 1-5: The following data relate to Jones Company for the year ended December 31, 2011: • Sales of credit $80,000 • Cost of inventory sold on credit 65,000 • Collections from customers 60,000 • Purchase of inventory on credit 50,000 • Payment for purchases 55,000 • Cash collections for common stock 30,000 • Dividends paid 10,000 • Payment to sales clerk 10,000 a. Determine income on an accrual basis. b. Determine income on a cash basis.

Answer 1

a. $15,000

b. $15,000

Step-by-step explanation:

The computation of the income under each method is shown below:

a. Income on an accrual basis:

= Sales of credit - Cost of inventory sold on credit

= $80,000 - $65,000

= $15,000

b. Income on a cash basis:

= Collections from customers - Payment for purchases + Cash collections for common stock - Dividends paid - Payment to sales clerk

= $60,000 - $55,000 + $30,000 - $10,000 - $10,000

= $15,000