B. Compute the gross profit (loss) on Thompson Plumbing\'s Transactions during September and
October if a cash-basis accounting system was used.
D. Assume that the fair value of Thompson Plumbing\'s Inventory at October 31 is $750,000. A
potential lender asks Thompson Plumbing to prepare a fair-value-based balance sheet . Prepare
the journal entry to reflect inventory at fair value.
Solution
a. Gross Profit on Thompson Plumbing\'s Transaction for September and October :
b. Cash Basis Accounting System recognizes income only when Payment is received and
expenses only when payment is made , accordingly Gross Profit(loss) for September and October
:
d.SeptemberOctoberTotalReceipts$ 150,000.00$ 375,000.00$ 525,000.00Less : Payment$
100,000.00$ 250,000.00$ 350,000.00Gross Profit/(Loss)$ 50,000.00$ 125,000.00$
175,000.00.
Thompson Plumbing's Gross Profit Using Cash Basis Accounting
1. B. Compute the gross profit (loss) on Thompson Plumbing's Transactions during September and
October if a cash-basis accounting system was used.
D. Assume that the fair value of Thompson Plumbing's Inventory at October 31 is $750,000. A
potential lender asks Thompson Plumbing to prepare a fair-value-based balance sheet . Prepare
the journal entry to reflect inventory at fair value.
Solution
a. Gross Profit on Thompson Plumbing's Transaction for September and October :
b. Cash Basis Accounting System recognizes income only when Payment is received and
expenses only when payment is made , accordingly Gross Profit(loss) for September and October
:
d.SeptemberOctoberTotalReceipts$ 150,000.00$ 375,000.00$ 525,000.00Less : Payment$
100,000.00$ 250,000.00$ 350,000.00Gross Profit/(Loss)$ 50,000.00$ 125,000.00$
175,000.00
