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Topic: Cash to Accrual basis..Plsss help (

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nishvik
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Joined: 01 Aug 2010
Location: United States
Online Status: Offline
Posts: 56

Posted: 05 Jun 2012 at 15:23 \| IP Logged

MCQ 1.

Marr Corp. reported rental revenue of $2,210,000 in its cash basis federal income tax return for the year ended November 30, 1990. Additional information is as follows:

Rents receivable - November 30, 1990 $1,060,000

Rents receivable - November 30, 1989 800,000

Uncollectible rents written off during the fiscal year 30,000

Under the accrual basis, Marr should report rental revenue of:

a .1,920,000

b.1,980,000

c.2,440,000

d.2,500,000

The Correct Answer is d

My way of doing this Mcq

SInce Rent Receivable is Current Asset..When we convert Cash to Accrual

Add Increase in CA

Less Decrease in CA

Add Decrease in CL

Less Increase in CL

SO 2210,000 we add the 260,000(1060,000-800,000)= 2470

I subtracted 30000 uncollectible 2470-30=2440

But Ugghhhh the correct answer is option d....

I did not understand uncollectible rent part?????

Please help

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Thank you

Nishvik

Zeratul
Major Contributor

Joined: 11 Jun 2009
Online Status: Offline
Posts: 987

Posted: 06 Jun 2012 at 16:00 \| IP Logged

Uncollectible accounts is an expense under the accrual method but does not impact cash method financial statements. Therefore this amount has to be added to accrual income to get to cash income.

kmp14
Newbie
Newbie

Joined: 21 Jul 2010
Location: United States
Online Status: Offline
Posts: 7

Posted: 06 Jun 2012 at 16:21 \| IP Logged

Best way to approach any question on accrual to cash or cash to accrual is

Op. Bal     800     4th step
Revenue    2500    s queeze item
              ------
             3300    3rd step
Cash coll (2210)   2nd step
Bad Debts    (30)    &nb sp;2nd step
             ------
Closing     1060   & nbsp;1 st step

I hope this works for you....

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