The Barden Company Provides the Following Information from Its Year

question 48

Multiple Choice

The Barden Company provides the following information from its Year 3 and Year 4 balance sheets:
$\begin{array}{lrr}&\text { Year } 3&\text { Year } 4\\\text { Accounts receivable } & \$ 115,000 & \$ 97,500 \\\text { Inventory } & 120,000 & 130,000 \\\text { Prepaid insurance } & 7,500 & 1,500 \\\text { Prepaid rent } & 40,000 & 15,000 \\\text { Accounts payable } & 55,000 & 65,000\end{array}$
The following information is available from the Year 4 income statement:
$$\begin{array} {| l r | } \hline \text { Sales } & \$ 425,000 \\\text { Cost of goods sold } & 225,000 \\\text { Insurance expense } & 12,000 \\\text { Rent expense } & 25,000\\\hline\end{array}$$
-Assuming that the information provided from the income statement represents all of the pre-tax income of Barden Company,what is the difference between the accrual-basis and cash-basis income in Year 4?

• A)Accrual exceeds cash basis by $16,500.
• B)Cash exceeds accrual basis by $23,500.
• C)Accrual exceeds cash basis by $25,000.
• D)Cash exceeds accrual basis by $48,500.

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Definitions:

Withdrawals

Amounts of money taken out from a business by the owner(s) for personal use, not considered a business expense.

Fees Earned

Revenue generated from services provided or work completed during a specific period.

Adjusted Trial Balance

A final tally of all financial accounts, after adjustments, used to prepare financial statements, ensuring the total debits equal total credits.

Income Statement Columns

Sections within an income statement that categorize financial data, such as revenues and expenses, to help in analyzing a company's financial performance over a specific period.