Question

Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.

Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $41,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method.
Two weeks prior to the audit, the company paid $13,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
On December 31, 2020, merchandise inventory was understated by $70,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
Two years earlier, the company recorded a 4% stock dividend (1,200 common shares, $1 par) as follows:

Answer 1

The firm's accounting profit, calculated by subtracting the explicit costs of labor, capital, and materials from the total revenues, was $50,000 last year.

Step-by-step explanation:

Calculating Accounting Profit

The question pertains to the calculation of a firm's accounting profit, which is the total revenues minus the explicit costs. Given that the firm had sales revenue of $1 million last year and incurred costs of $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit can be determined as follows:

Total Revenues = $1,000,000

Explicit Costs (sum of labor, capital, materials): $600,000 + $150,000 + $200,000 = $950,000

Accounting Profit = Total Revenues - Explicit Costs = $1,000,000 - $950,000 = $50,000

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