Question

The following items appeared on the financial statements of Washington Company.

Line item Description Amount
Accounts receivable, January 1 $14,955
Accounts receivable, December 31 $8,337
Accounts payable, January 1 $4,244
Accounts payable, December 31 $9,723
Inventory, January 1 $10,297
Inventory, December 31 $15,890
Sales $74,633
Cost of goods sold $31,762

Answer 1

The question involves calculating accounting profit, which is determined by subtracting total explicit costs from sales revenue. The firm's accounting profit is $50,000, calculated from $1,000,000 in sales minus $950,000 in costs.

Step-by-step explanation:

The question pertains to an aspect of financial statements and accounting calculations, specifically focusing on the concept of accounting profit. To calculate the accounting profit, you would subtract the explicit costs of labor, capital, and materials from the total sales revenue. Following the provided information, the firm's sales revenue was $1 million last year, and the explicit costs amounted to $600,000 for labor, $150,000 for capital, and $200,000 for materials.

Therefore, the calculation for the firm's accounting profit would be:

• Total Sales Revenue: $1,000,000
• Total Explicit Costs: $600,000 (Labor) + $150,000 (Capital) + $200,000 (Materials) = $950,000
• Accounting Profit: $1,000,000 - $950,000 = $50,000

Thus, the firm's accounting profit is $50,000.