Question
Ceti Co. sells environmentally friendly coffee cups through an online store. The company is owned by Ceti Kadi. The following transactions took place over the
Ceti Co. sells environmentally friendly coffee cups through an online store. The company is owned by Ceti Kadi. The following transactions took place over the first two years of operations:
Year | Description |
20X1 | Purchased 8,900 units for resale at $13.50 each |
20X1 | Purchased furniture and equipment using the companys line of credit (Note 1) |
20X1 | Incurred other operating expenses of $25,300 during the year |
20X1 | Sold 7,250 units in cash, with a total cost of $24.50 per unit |
20X1 | Paid $10,800 toward the companys line of credit (including interest of $1,540) |
20X2 | Purchased 13,400 units for resale at $13.50 each |
20X2 | Sold 12,500 units in cash with a total cost of $24.50 per unit |
20X2 | Incurred other operating expenses of $30,200 during the year |
20X2 | Paid $15,900 toward the companys line of credit (including interest of $1,310) |
Furniture and equipment has the following estimated useful lives. Ceti depreciates furniture and equipment using the straight-line method.
Cost | Useful life | Fair value 31 Dec 20X1 | Fair value 31 Dec 20X2 | |
Equipment | 49,500 | 5 years | 44,700 | 45,200 |
Furniture | 17,500 | 5 years | 9,300 | 7,400 |
Required: 1. Calculate the accounting income for 20X1 and 20X2 (use the FIFO method for accounting for inventory). 2.Calculate the total economic income for 20X1 and 20X2.
3. Calculate the total income under the cash basis of accounting.
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