Question

CON3-1 Accounting for Operating Activities in a New Business (the Accounting Cycle) Penny's Pool Service \& Supply, Inc. (PPSS), had the following transactions related to operating the business in its first year's busiest quarter ended September 30 :

a. Placed and paid for $2,600 in advertisements with several area newspapers (including the online versions), all of which ran in the newspapers during the quarter.
b. Cleaned pools for customers for $19,200, receiving $16,000 in cash with the rest owed by customers who will pay when billed in October.
c. Paid Pool Corporation, Inc., a pool supply wholesaler, $10,600 for inventory received by PPSS in May.
d. As an incentive to maintain customer loyalty, PPSS offered customers a discount for prepaying next year's pool cleaning service. PPSS received $10,000 from customers who took advantage of the discount.
e. Paid the office receptionist $4,500, with $1,500 owed from work in the prior quarter and the rest from work in the current quarter

Answer 1

The firm's accounting profit was $50,000.

Step-by-step explanation:

Accounting profit is calculated by subtracting the explicit costs from total revenues. In this case, the firm had sales revenue of $1 million and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials.

Accounting profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.

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