I do not understand how the answer to this question was computed. If a cash dividend went out to shareholders, doesn't it decrease cash basis net income and also accrual basis net income since it is a dividend expense? My answer for cash would be to add the $1,000,000 investment, add the payment of services $3,200,000 and subtract the cash dividends. My answer for the accural basis net income would be to add the $1,000,000 investment, add the payment of services $3,200,000, subtract the expenses incurred and subtract the cash dividends.

On April 1 Ivy Corp. began operating a service company with an initial cash investment by shareholders of $1,000,000. The company provided $3,200,000 of services in April and received full payment in May. Ivy also incurred expenses of $1,500,000 in April that were paid in June. During May, Ivy paid its shareholders cash dividends of $500,000. What was the company's income before income taxes for the two months ended May 31 under the following methods of accounting? Cash Basis Accrual Basis a.$ 32,00,000 1,700,000 b. $27,00,000 $1,200,000 c. $17,00,000 $1,700,000 d. $32,00,0001200,000