question 6\nvery good cookies prepares its financial statements annually using the cash basis of accounting…

question 6\nvery good cookies prepares its financial statements annually using the cash basis of accounting. the following information is available for the year ended december 31, 2027.\n1. purchased a one - year insurance policy on october 1 for $1,800 cash.\n2. paid $4,400 on november 1 for four months rent in advance.\nwould the company appear more profitable if it used the accrual basis of accounting? why or why not?\na yes. both transactions cause accrual - basis net income to be greater than cash - basis net income.\nb no. both transactions cause accrual - basis net income to be less than cash - basis net income.\nc yes. under the accrual basis, the revenue of transaction 2 is greater than the expense of transaction 1.\nd no. under the accrual basis, the revenue of transaction 2 is less than the expense of transaction 1.

question 6\nvery good cookies prepares its financial statements annually using the cash basis of accounting. the following information is available for the year ended december 31, 2027.\n1. purchased a one - year insurance policy on october 1 for $1,800 cash.\n2. paid $4,400 on november 1 for four months rent in advance.\nwould the company appear more profitable if it used the accrual basis of accounting? why or why not?\na yes. both transactions cause accrual - basis net income to be greater than cash - basis net income.\nb no. both transactions cause accrual - basis net income to be less than cash - basis net income.\nc yes. under the accrual basis, the revenue of transaction 2 is greater than the expense of transaction 1.\nd no. under the accrual basis, the revenue of transaction 2 is less than the expense of transaction 1.

Answer

Explanation:

Step1: Analyze transaction 1

Purchased one - year insurance on Oct 1 for $1,800 cash. Under cash - basis, the full $1,800 is an expense in 2027. Under accrual - basis, for 2027 (3 months from Oct 1 - Dec 31), the expense is $\frac{1800}{12}\times3 = 450$. So, accrual - basis expense is less for this transaction.

Step2: Analyze transaction 2

Paid $4,400 for four - months' rent in advance on Nov 1. Under cash - basis, the full $4,400 is an expense in 2027. Under accrual - basis, for 2027 (2 months from Nov 1 - Dec 31), the expense is $\frac{4400}{4}\times2=2200$. So, accrual - basis expense is less for this transaction too.

Step3: Determine net income comparison

Since accrual - basis expenses are less than cash - basis expenses for both transactions, accrual - basis net income will be greater than cash - basis net income.

Answer:

A. Yes. Both transactions cause accrual - basis net income to be greater than cash - basis net income.