Sam quit a $30,000-a-year job with a local heating and air conditioningfirm to go into business for himself. After his first year in business, his accountant showed him an income statement, which indicated Sam’s firmhad a profit of $40,000. During this year, Sam drew a salary of $20,000.a. What were Sam’s accounting profit and entrepreneurial profit?b. Explain the difference between accounting profit and entrepreneurial profit.

Sam quit a $30,000-a-year job with a local heating and air conditioningfirm to go into business for himself. After his first year in business, his accountant showed him an income statement, which indicated Sam’s firmhad a profit of $40,000. During this year, Sam drew a salary of $20,000.a. What were Sam’s accounting profit and entrepreneurial profit?b. Explain the difference between accounting profit and entrepreneurial profit.

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter15: Taxing Business Income

Section: Chapter Questions

Problem 3DQ

See similar textbooks

Similar questions

Blaze operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: 1,500 for travel, 2,000 for legal advice, and 3,500 for a market analysis. Based on the different tax consequences listed below, describe the circumstances that were involved in Blazes investigation of the business. a. Blaze deducts the 7,000 of expenses. b. Blaze cannot deduct any of the 7,000 of expenses. c. Blaze deducts 5,000 of the expenses and amortizes the 2,000 balance over a period of 180 months.
Josh is an employee of a large Accounting firm in the city earning $120,000 peryear. On weekends, to earn extra income, she established a small businessselling Pokemon soft toys at the local market. In the first year of operating herbusiness, she earned $8,000 revenue and incurred expenses of $10,000. Can heoffset this loss against her salary income of $120,00? Would your answers will bedifferent if Joss has been doing business this year for the past 5 years and the itwas profitable on the first 3 years.
Maury quit his job as an accountant with We Keep Books Accurately toopen his own accounting firm. He earned $40,000 with the accounting firmWe Keep Books Accurately. During the current year, Maury had revenuesof $150,000 and total expenses of $110,000; he did not draw a salary.a. What was Maury’s accounting profit?b. What was Maury’s entrepreneurial profit?
On January 2, Daniel Harrison contributed $20,000 to start his business. At the end of the year,the business had generated $30,000 in sales revenues, incurred $18,000 in operating expenses, anddistributed $5,000 for Daniel to use to pay some personal expenses. Prepare ( a ) a statement ofowner’s equity, assuming this is a sole proprietorship; ( b ) the owner’s equity section of the balancesheet, assuming this is a sole proprietorship; and ( c ) the stockholder’s equity section of the balancesheet, assuming this is a corporation with no-par value stock.
X had started business with $2,00,000 in the beginning of the year. During the year, he borrowed $1,00,000 from Y. He further introduced $2,00,000 in the business. He also gave $50,000 as loan to his son. Goods given away as charity by him were $20,000. Profits earned by him were $2,50,000. He also withdraw $30,000 from the business. His capital at the end of the year would be__________.
Ricardo is an engineer in a private company and earned salaries of $ 103,000 a year. During the current year, he started a vitamin sales business, in which he made a net loss of $ 4,000. How much is adjusted gross income?
Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as of June 15 • Your existing business generates $111,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $21,143. • You don’t need to spend any money for new equipment in your existing cafés; however, you do need $16,650 of additional cash. • You also need to purchase $8,880 in additional supplies—such as tableclothes and napkins, and more formal tableware—on credit. • It is also estimated that your accruals, including taxes and wages payable, will increase by $5,550. Based on your evaluation you have…
Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as of June 15 • Your existing business generates $123,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $23,429. • You don’t need to spend any money for new equipment in your existing cafés; however, you do need $18,450 of additional cash. • You also need to purchase $9,840 in additional supplies—such as tableclothes and napkins, and more formal tableware—on credit. • It is also estimated that your accruals, including taxes and wages…
On 1 January 2020, Michael invested £13,000 in a car wash business in front of his house. He used part of the money to buy equipment for £3,000 and supplies worth £1,000 good for 1.5 years. During the first year of operations, the business received only £5,000 after rendering car wash services. Michael prepared the following income statement for the year ended 31 December 2020. He asked your help to assess the presentation of the relevant information in his income statement. Michael Car Wash Income Statement For the year ended 31 December 2020 (£) Service revenue 5,000 Less expenses: Equipment 3,000 Supplies 1,000 Salaries 1,200 Electricity and water 150 Income tax 700 Net income (loss) for the month (1,050)…
2 Josh is an employee of a large Accounting firm in the city earning $120,000 per year. On weekends, to earn extra income, she established a small business selling Pokemon soft toys at the local market. In the first year of operating her business, she earned $8,000 revenue and incurred expenses of $10,000. Can he offset this loss against her salary income of $120,00? Would your answers will be different if Joss has been doing business this year for the past 5 years and the it was profitable on the first 3 years.
One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has resigned from the company. The accounts at December 31, are as follows: Allan indicates that, at year-end, customers owe him $1,000 accrued service revenue, which he expects to collect early next year. These revenues have not been recorded. During the year, he collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year he has incurred $2,400 of advertising expense, but he has not yet paid for it. In addition, he has used up $2,100 of the supplies. Allan determines that depreciation on equipment was $7,000 for the year. At December 31, he owes his employee $1,200 accrued salary. The rent paid in advance on Jan 2…
One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has resigned from the company. The accounts at December 31, are as follows: Allan indicates that, at year-end, customers owe him $1,000 accrued service revenue, which he expects to collect early next year. These revenues have not been recorded. During the year, he collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year he has incurred $2,400 of advertising expense, but he has not yet paid for it. In addition, he has used up $2,100 of the supplies. Allan determines that depreciation on equipment was $7,000 for the year. At December 31, he owes his employee $1,200 accrued salary. The rent paid in advance on Jan 2…