Final answer:
Using accrual accounting, the net income of Stannous Company in Year 1 would be the full $2,000 of earned revenue, provided there are no other costs to subtract. This is because in accrual accounting, revenue is recognized when earned, not when cash is received.
Step-by-step explanation:
The student's question is concerned with determining the net income for Stannous Company in Year 1 under accrual accounting. In accrual accounting, revenue is recognized when it is earned, regardless of when the money is actually received. Since Stannous Company earned $2,000 of revenue on account in Year 1, the entire $2,000 is recognized as revenue in Year 1. The cash collection aspect does not impact the recording of revenue in accrual accounting, although it will affect the company's cash flow.
For the calculation of net income, however, we need to consider other factors such as expenses. If we refer to the provided self-check question, we can gain insight into how net income is calculated: Accounting profit is computed by subtracting explicit costs from total revenues. Using the referenced self-check example, if a firm had sales revenue of $1 million and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be the total revenue minus these explicit costs, which equals $50,000.
Applying that to Stannous Company, if we assume they had no other explicit costs, their net income for Year 1 would be the full $2,000 of recorded revenue as their accounting profit, because all revenue is recognized and there are no mentioned costs to be subtracted.