Question

Exercise: The trial balance of Canton Air Company at December 31, 2012, and the data needed for the month-end adjustments follow. Account Cash Accounts receivable Prepaid rent Supplies Canton Air Co. Trial Balance Dec. 31, 2012 Equipment Accumulated depreciation Accounts payable Unearned service revenue Canton, capital Canton, drawing Service revenue Salary expense Advertising expense Total Debit $7,200 $19,400 $2,200 $1,600 $20,000 $9,600 $3,300 $1,300 $64,600 Credit $3,700 $3,400 $2,600 $39,000 $15,900 $64,600 Adjustment data at December 31 follow: a. Unearned service revenue still unearned, $1,800. b. Prepaid rent still in force, $600. c. Supplies used during the month, $400. d. Depreciation for the month, $700. e. Accrued advertising expense, $900. f. Accrued salary expense, $800. Activat Go to Set​

Answer 1

The accounting profit is calculated by subtracting explicit costs from total revenues, which in the given scenario amounts to $1,000,000 in revenues minus $950,000 in explicit costs, resulting in an accounting profit of $50,000.

Step-by-step explanation:

Understanding Accounting Profit

To calculate the accounting profit, you subtract the total explicit costs from the total revenues. In the given exercise, a firm had total revenues of $1 million. The recorded expenses include $600,000 on labor, $150,000 on capital, and $200,000 on materials. All these are explicit costs because they represent direct payments for inputs used in the production process.

Accounting profit is calculated by taking the total revenues and deducting these explicit costs, which for the provided data amounts to:

• Total Revenues: $1,000,000
• Explicit Costs: Labor ($600,000) + Capital ($150,000) + Materials ($200,000) = $950,000
• Accounting Profit: $1,000,000 - $950,000 = $50,000

This $50,000 is the firm's accounting profit, reflecting the surplus after all explicit costs are covered. However, note that this figure does not take into account any implicit costs, which if considered, might provide a different measure called economic profit.