Question

Olivet, Inc. has the following transactions during the month of May: May 1st: Prepaid three months of rent for $6,000, covering May through July. May 5th: Collected $56,000 payment in advance for work to be performed. $20,000 is performed in May and the rest in June. May 18th: Performed $7,500 of services, receiving $1,800 now and billing client for remainder. May 25th: Received $800 from client billed on May 18th. May 30th: Received utility bill for May of $4,000; will pay in June. What amount of net income would Olivet record for May under the accrual basis of accounting

Answer 1

Olivet, Inc.

Net income = $21,500

Step-by-step explanation:

a) Data and Calculations:

Rent expense = $2,000 ($6,000/3)

Service Revenue:

Advance receipt = $20,000

On account May 18th 7,500

Total Service Revenue $27,500

Utility expense = $4,000

b) Olivert, Inc. Income Statement for the month of May:

Service Revenue $27,500

Less Expenses:

Rent $2,000

Utility 4,000 6,000

Net Income $21,500

b) Olivert's net income of $21,500 represents the difference between the service revenue of $27,500 for the month of May and the expenses totaling $6,000.