Question

Thrifty Storage operates approximately 300? mini-warehouses across Canada. The? company's headquarters are in Medicine? Hat, Alberta. During? 2014, Thrifty earned rental revenue of $ 30.5 million and collected cash of ?$26.0 million from customers. Total expenses for 2014 were ?$20.0 ?million, of which Thrifty paid ?$17.2 million. Required 1. Apply the recognition criteria for revenues and the matching objective to compute Thrifty ?Storage's net income for 2014. 2. Identify the information that you did not use to compute Thrifty ?Storage's net income. Give the reason for not using the information

Answer 1

Calculation of net income of Thrifty Storage for the year 2014

Rental revenue earned in the year 2014 = $ 30.5 million

Total expenses for the year 2014 = $ 20 million

Hence, net income for the year 2014 = $ 30.5 million - $ 20 million

= $ 10.5 million

While calculating income of a particular year, revenues and expenses of that year are considered, it does not matter whether the revenue has been received in cash or not and whether the expenses have been paid in cash or not. In the given question, rental revenue for the current year is $ 30.5 million out of which $ 26 million has been received from the customers, which means $ 4.5 million has not been received so far. But this information will not be used while calculating income of the current year.

Total expenses of the current year are $20 million, out of which $ 17.2 million has been paid, which means $ 2.8 million has not been paid in the current year. But this information will not be used while calculating income of the current year.