Question

Forten Company, a merchandiser, recently completed its calendar-year 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses.

The company income statement and balance sheets follow:

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2015 and 2014
2015 ($) 2014 ($)
Assets
Cash 49,800 73,500
Accounts receivable 65,810 50,625
Inventory 275,656 251,800
Prepaid expenses 1,250 1,875
Total current assets 392,516 377,800
Equipment 157,500 108,000
Accum. depreciation-Equipment (36,625) (46,000)
Total assets 513,391 439,800
Liabilities and Equity
Accounts payable 53,141 114,675
Short-term notes payable 10,000 6,000
Total current liabilities 63,141 120,675
Long-term notes payable 65,000 48,750
Total liabilities 128,141 169,425
Equity
Common stock, $5 par value 150,250 162,750
Paid-in capital in excess of par, common stock 37,500 0
Retained earnings 185,000 120,125
Total liabilities and equity 513,391 439,800


FORTEN COMPANY
Income Statement
For Year Ended December 31, 2015
Sales $582,500
Cost of goods sold $285,000
Gross croft $297,500
Operating expenses
Depreciation expense $20,750
Other expenses $132,400 $153,150
Others gains (losses)
Loss on sale of equipment $(5,125)
Income before taxes $139,225
Income taxes expense $24,250
Net $114,975

Additional information on Year 2015 Transactions:

a. The loss on the cash sale of equipment was $5,125 (details in b).

Answer 1

The firm's accounting profit is calculated by subtracting all costs, including labor, capital, and materials, from the sales revenue. With a revenue of $1 million and costs totaling $950,000, the firm's accounting profit would be $50,000.

The firm's accounting profit can be calculated by subtracting all the costs from the sales revenue.

In this case, if a firm had sales revenue of $1 million last year, and it spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, its accounting profit would be determined by the following calculation:

Sales Revenue: $1,000,000

Total Costs: (Labor + Capital + Materials) = ($600,000 + $150,000 + $200,000) = $950,000

Accounting Profit: (Sales Revenue - Total Costs) = $1,000,000 - $950,000 = $50,000

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