revenue and expense recognition\nlauhl corporation provides janitorial services to several office buildings…

revenue and expense recognition\nlauhl corporation provides janitorial services to several office buildings. during april, lauhl engaged in the following transactions:\na. on april 1, lauhl received $70,200 from metro corporation to provide cleaning services over the next 6 months.\nb. on april 5, lauhl purchased and received $8,500 of supplies on credit from eagle supply company. during the month, lauhl paid $5,000 to eagle and used $1,300 of the supplies.\nc. on april 20, lauhl performed one - time cleaning services of $2,500 for jones company. jones paid lauhl the full amount on may 10.\nd. on april 30, lauhl paid employees wages of $5,900. an additional $850 was owed to employees for work performed in april.\nrequired:\n1. calculate the amount of net income that lauhl should recognize in april under cash - basis accounting.\n2. calculate the amount of net income that lauhl should recognize in april under accrual - basis accounting.

revenue and expense recognition\nlauhl corporation provides janitorial services to several office buildings. during april, lauhl engaged in the following transactions:\na. on april 1, lauhl received $70,200 from metro corporation to provide cleaning services over the next 6 months.\nb. on april 5, lauhl purchased and received $8,500 of supplies on credit from eagle supply company. during the month, lauhl paid $5,000 to eagle and used $1,300 of the supplies.\nc. on april 20, lauhl performed one - time cleaning services of $2,500 for jones company. jones paid lauhl the full amount on may 10.\nd. on april 30, lauhl paid employees wages of $5,900. an additional $850 was owed to employees for work performed in april.\nrequired:\n1. calculate the amount of net income that lauhl should recognize in april under cash - basis accounting.\n2. calculate the amount of net income that lauhl should recognize in april under accrual - basis accounting.

Answer

Explanation:

Step1: Calculate cash - basis net income

Cash - basis accounting records revenues when cash is received and expenses when cash is paid. Revenue received in April = $70,200 (from Metro) Expenses paid in April:

  • Supplies payment = $5,000
  • Wages payment = $5,900 Cash - basis net income = Revenue - Expenses = $70,200-(5,000 + 5,900)$ = $70,200 - 10,900$ = $59,300$

Step2: Calculate accrual - basis net income

Accrual - basis accounting records revenues when earned and expenses when incurred. Revenue earned in April:

  • Revenue from Metro: $\frac{70,200}{6}=11,700$ (since services are for 6 months and April is 1 month)
  • Revenue from Jones = $2,500$ Total revenue = $11,700+2,500 = 14,200$ Expenses incurred in April:
  • Supplies used = $1,300$
  • Wages incurred = $5,900 + 850=6,750$ Total expenses = $1,300+6,750 = 8,050$ Accrual - basis net income = Revenue - Expenses = $14,200 - 8,050$ = $6,150$

Answer:

  1. $59,300$
  2. $6,150$