Exercise 1
O'Brien Industries collected $200,000 cash from customers in 2015. Of the amount collected,
$40,000 was from revenue accrued from services performed in 2014, and $20,000 was received
in advance for services to be performed in 2016. In addition to the aforementioned events,
O'Brien earned $70,000 of revenue in 2015, which will not be collected until 2016. O'Brien also
recognized $25,000 of revenue in 2015 which had been collected in 2014.
O'Brien Industries paid $140,000 cash for expenses in 2015. Of the amount paid, $50,000 was
for expenses incurred on account in 2014, $22,000 was paid in advance for 2016 expenses. In
addition to the aforementioned events, O'Brien incurred $78,000 of expenses in 2015, which
will not be paid until 2016. O'Brien also incurred $29,000 of expenses in 2015 which had been
prepaid in 2014.
Instructions:
(a) Compute 2015 cash-basis net income.
(b) Compute 2015 accrual-basis net income.
