Consider the following information.
(i)$20 000 of accounts payable was paid.
(ii)$100 000 from accounts receivable was received.
(iii)Inventory of $200 000 was purchased on credit.
(iv)Credit sales of $700 000 (cost of goods sold was $450 000)were made.
(v)$10 000 of prepayments expired during the month.
What is the profit for the period?
A) $120 000
B) $240 000
C) $250 000
D) none of the above.

Question

Consider the following information. 
(i)$20 000 of accounts payable was paid.
(ii)$100 000 from accounts receivable was received.
(iii)Inventory of $200 000 was purchased on credit.
(iv)Credit sales of $700 000 (cost of goods sold was $450 000)were made.
(v)$10 000 of prepayments expired during the month.
What is the profit for the period?
A) $120 000
B) $240 000
C) $250 000
D) none of the above.

Quizplus · Accepted Answer

To compute the profit, we need to use the formula: 
Profit = Revenue - Expenses

Revenue: 
- From (ii), $100,000 was received from accounts receivable. 
- From (iv), credit sales of $700,000 were made. To get the actual revenue earned, we need to subtract the cost of goods sold (COGS). Since COGS was $450,000, we have: 
Revenue = $700,000 - $450,000 = $250,000

Expenses: 
- From (i), $20,000 of accounts payable was paid. 
- From (iii), inventory of $200,000 was purchased on credit. 
- From (v), $10,000 of prepayments expired during the month.

Total expenses = $20,000 + $200,000 + $10,000 = $230,000

Therefore, 
Profit = Revenue - Expenses 
Profit = $250,000 - $230,000 
Profit = $20,000

Therefore, the profit for the period is $20,000. Option B is the correct answer.

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