John Doe, Inc., an accrual basis corporation, sponsored a beauty pageant on Dece
ID: 2469680 • Letter: J
Question
John Doe, Inc., an accrual basis corporation, sponsored a beauty pageant on December 29, 2015. The gross receipts amounted to $310,000. The following expenses were incurred and paid on the dates indicated below:
Date of Payment
Nature of Expenses
Amount
December 19, 2015
Rental of Arena
$26,000
December 30, 2015
Cost of goods sold
Souvenirs
62,000
Food
32,000
January 3, 2016
Performers
95,000
February 2, 2016
Cleaning of Arena
10,000
Because the arena was not scheduled to be used again until January 13, Janitorial Services, Inc., the company with which John Doe, Inc. contracted, did not perform the cleanup work until January 7–9, 2016. Calculate the next pageant for tax purposes for 2015
Date of Payment
Nature of Expenses
Amount
December 19, 2015
Rental of Arena
$26,000
December 30, 2015
Cost of goods sold
Souvenirs
62,000
Food
32,000
January 3, 2016
Performers
95,000
February 2, 2016
Cleaning of Arena
10,000
Explanation / Answer
John Doe, Inc Calculation of Net Income for Tax purposes for 2015 $ Gross Receipts 310000 Expenses Arena Rent 26000 Cost of goods sold Souvenirs 62000 Food 32000 Performers 95000 Cleaning of Arena 10000 Total expenses 225000 Net Income 85000 Note: Since the Company is an Accrual basis corporation all the expenses are accounted in the period where the concerned income is booked to arrive at the correct profit.
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