Question

Fairchild had the following information related to the sale of its products during its first year of business: revenue $1,000,000 returns of goods sold $100,000 cash collected $800,000 cost of goods sold $700,000 under the accrual basis of accounting, how much net revenue would be reported on fairchild's income statement?

a. $200,000
b. $700,000
c. $900,000
d. $800,000

Answer 1

Fairchild's net revenue on the income statement, calculated on an accrual basis, would be $900,000 after subtracting returns of goods sold ($100,000) from sales revenue ($1,000,000). The correct multiple-choice option is (c).

Step-by-step explanation:

Calculation of Net Revenue under Accrual Basis of Accounting

To calculate Fairchild's net revenue for its first year of business on an accrual basis of accounting, you would need to consider their revenue, any returns on goods sold, and the cost of goods sold (COGS). According to the accrual basis of accounting, revenue is reported when it is earned rather than when cash is collected, and expenses are reported when they are incurred. Therefore, cash collected is not relevant for calculating net revenue, and we only consider sales revenue and returns of goods sold.

The formula for net revenue is:

Net Revenue = Sales Revenue - Returns of Goods Sold

Using the provided information:

Thus, we can calculate the net revenue as follows:

Net Revenue = $1,000,000 - $100,000 = $900,000

Answer: The net revenue Fairchild would report on its income statement is $900,000, which corresponds to option (c).