Question

On May 1, the bank said it may lend money to Nim Com Soup, Inc. The amount will depend on Nim Com Soup's income statement for the month of May. Since the bank did not specify, Nim Com Soup did not follow generally accepted accounting principles (GAAP). It reported net income for the month ended May 31 of $20,000. The revenue included $1,000 of cash collected in advance from customers for services to be performed in June. The revenue also included a $12,000 increase in the value of its land. The expenses excluded $3,000 it owed for services it received in May. What is Nim Com Soup's GAAP Net Income?

Answer 1

Step-by-step explanation:

The following adjustments need to be made to Nim Com Soup Inc's income statements to be compliant with GAAP.

Net income as reported $ 20,000

Adjustments

Cash received for unperformed services $ ( 1,000)

Increase in fair value of land not revenue item $ (12,000)

GAAP net income $ 7,000

Increase in value of land is not a revenue item, it can be considered as in increase in land value if a revaluation is done

The liability of $ 3000 for services received in May is correctly considered because the period of benefit is May,