Question

A. An insurance policy covering three years was purchased on January 1, 2021, for $3,600. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item.

b. During 2021, the company received a $625 cash advance from a customer for merchandise to be manufactured and shipped in 2022. The $625 was credited to sales revenue. No entry was recorded for the cost of merchandise.
c. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $575 were on hand at December 31
d. Hales borrowed $15,000 from a local bank on October 1, 2021. Principal and interest at 12% will be paid on September 30, 2022. No accrual was recorded for interest.
e. Net income reported in the 2021 income statement is $31,000 before reflecting any of the above items

Answer 1

The firm's accounting profit can be calculated by subtracting the explicit costs from the total revenues. In this case, the firm's accounting profit was $50,000.

Step-by-step explanation:

The firm's accounting profit can be determined by subtracting the explicit costs from the total revenues. In this case, the firm had sales revenue of $1 million last year and spent $600,000 on labour, $150,000 on capital, and $200,000 on materials.

To calculate the accounting profit:

1. Add up the explicit costs: $600,000 + $150,000 + $200,000 = $950,000
2. Subtract the explicit costs from the total revenues: $1,000,000 - $950,000 = $50,000

Therefore, the firm's accounting profit was $50,000.