Accrual net income
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Listed below are several transactions that took place during the second two years of operations for RPG Consulting.
Year 2 Year 3
Amounts billed to customers for services rendered $350,000 $450,000
Cash collected from credit customers 260,000 400,000
Cash disbursements:
Payment of rent 80,000 -0-
Salaries paid to employees for services
rendered during the year 140,000 160,000
Travel and entertainment 30,000 40,000
Advertising 15,000 35,000
In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.
Required:
1. Calculate accrual net income for both years.
2. Determine the amount due the advertising agency that would be shown as a liability on the RPG's balance sheet at the end of year 2.
Amounts in parentheses do not require a minus sign in front of them.
1. Year 2 Year 3
Revenues $350,000 $450,000
Expenses:
Rent ( )
( )
Salaries ( )
( )
Travel and entertainment ( 30,000 ) ( 40,000 )
Advertising ( )
( )
Net Income $
$
2. Amount owed at the end of year 1 $
Add: advertising costs incurred in year 2
Less: amount paid in year 2 ( )
Liability at the end of year 2
Less: cash paid in year 3 ( )
Advertising expense in year 3 $
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The solution explains how to calculate the amount of accrual net income
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