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Coffee Corp. began a service business on January 1st, 2020 with a cash investment by...

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Accounting

Coffee Corp. began a service business on January 1st, 2020 with a cash investment by shareholders of $20,000. The following occurred during the first two months of operations:

  • The company borrowed $20,000 on January 1st. Interest is $100 per month and the first interest payment was paid February 3rd.
  • Coffee provided $15,000 of services in January and was paid in February.
  • Coffee incurred $10,000 of expenses in January and made all payments by January 28th.
  • The company paid shareholders cash dividends of $500 on January 26th.

What was Coffees income before income taxes for January under the following methods of accounting? Parentheses indicate a loss.

Cash Basis Accrual Basis

a) $(10,000) $5,000

b) $(10,500) $4,400

c) $5,000 $4,900

d) $(10,000) $4,900

e) None of the above

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