Question

On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $3,206,000. The company provided $8,200,000 of services in June and received full payment in July. Royal also incurred expenses of $2,645,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $490,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting

Answer 1

Cash Basis= $8,200,000

Accrual Basis= $5,555,000

Step-by-step explanation:

Calculation for the company's income before income taxes for the two months ended July 31

Based on the information given we were told that the company provided the amount of $8,200,000 of services in the month of June and received full payment of the amount in the month of July which means that the CASH BASIS will be $8,200,000

Cash Basis= $8,200,000

Calculation for Accrual Basis

Using this formula

Accrual Basis= Cash received - Incurred expenses

Accrual Basis= $8,200,000-$2,645,000

Accrual Basis= $5,555,000

Therefore the company's income before income taxes for the two months ended July 31 under the Cash Basis and Accrual Basis methods of accounting will be :

Cash Basis= $8,200,000

Accrual Basis= $5,555,000