Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual method of accounting. Class had $60,000 in cash-basis pretax income for Year 2. The following information pertains to Class's operations for the years ended December 31, Year 2 and Year 1:
 
 

Year 2

Year 1

Accounts receivable

$40,000

$20,000

Accounts payable

15,000

30,000

　　Under the accrual method, what amount of income before taxes should Class report in its December 31, Year 2, income statement?
 

A.

$65,000

B.

$55,000

C.

$25,000

D.

$95,000

　　Explanation
　　Choice "D" is correct. $95,000 accrual income before taxes in the December 31, Year 2, income statement.
 

Cash-basis pretax income for Year 2

$60,000

Increase in accts rec. ($40,000 - $20,000) (Cash used to pay down prior payables)

20,000

Reduction in accts pay. ($30,000 - $15,000) (Cash used to pay down prior payables)

15,000

Accrual-basis pretax income for Year 2

$95,000


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