Reference no: EM132951628

Problem 1: Comp Co. is a large organisation which provides IT services and has a deferred payment arrangement with one of their customers. Comp Co. has provided IT services to this customer in exchange for $63,200 to be paid in 2 years' time. Comp Co. typically provides credit arrangements to such customers at an annual rate of 10 per cent. The customer has a good credit history and with their previous transactions with Comp Co. they have always made payments within the agreed time frame. Comp Co. is confident that the $63,200 will also be paid on time. How much income should Comp. Co recognise at the time the IT services are provided?

a. $76,472

b. $75,840

c. $63,200

d. None of these choices

Problem 2: Which of the following statements is FALSE in relation to the cash and accrual basis of accounting?

a. Financial accounting reports are generally prepared on what is known as the cash basis.

b. Under the cash basis of accounting, transactions and events are only recorded if they affect cash (that is, if they result in a cash inflow or cash outflow).

c. Under the accrual basis of accounting, expenses are recognised as the expense is incurred or consumed (which is not necessarily at the same time as the related cash payment is made).

d. Under the accrual basis of accounting, income is recognised when it is earned (which is not necessarily when the related cash is ultimately received).