Choice "D" is correct. Cash basis pretax income would be $36,000 higher than accrual basis income because:

• The $20,000 decrease in accounts receivable represents cash paid in the current period on accounts receivable from prior periods. Under the cash basis, this $20,000 would be recorded as current period income but under the accrual basis the revenue would have been recorded in the prior periods. Therefore cash basis income in the current period is $20,000 higher than accrual basis income.

• The $16,000 increase in accounts payable represents expenses incurred but not yet paid. Under the cash basis, no expense would be recorded for the $16,000 increase because cash has not been paid. Under the accrual basis, expenses totaling $16,000 are recorded when the payables are recorded. As a result, cash basis income is $16,000 higher than accrual basis income.