[Hangry]

For the life of me, I can’t understand why cash is added back when AP is paid down.

Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual method of accounting. Class had $60,000 in cash-basis pretax income for Year 2. The following information pertains to Class’s operations for the years ended December 31, Year 2 and Year 1:

Year 2 Year 1

Accounts receivable $ 40,000 $ 20,000

Accounts payable 15,000 30,000

Under the accrual method, what amount of income before taxes should Class report in its December 31, Year 2, income statement?

Answer is 95k

FAR: 49, 64