In Its First Year of Operations,Grace Company Reports the Following

question 19

Multiple Choice

In its first year of operations,Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers) ; Incurred expenses of $35,000 ($31,000 cash paid toward them) ; Prepaid $8,000 cash for costs that will not be expensed until next year.Net income under the accrual basis of accounting is:

• A)$17,000.
• B)$21,000.
• C)$13,000.
• D)$25,000.
• E)None of the answer choices is correct.

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Definitions:

Cost of Goods Sold

The total cost of manufacturing or acquiring the inventory that was sold during a specific period.

Credit Card Fees

Charges imposed by credit card companies for the processing of transactions, often including a percentage of the transaction amount and a flat fee.

Multiple-Step Income Statement

An income statement that separates operating transactions from non-operating transactions and calculates gross margin and operating income.

Administrative Expenses

Overhead or general expenses related to the day-to-day operations of a business, which do not directly contribute to the production of goods or services.