Exercise 1-2 Accrual accounting [LO1-2]
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 | $ | 430,000 | | $ | 530,000 | |
| Cash collected from credit customers | | 340,000 | | | 480,000 | |
| Cash disbursements: | | | | | | |
| Payment of rent | | 88,000 | | | 0 | |
| Salaries paid to employees for services rendered during the year | | 148,000 | | | 168,000 | |
| Travel and entertainment | | 38,000 | | | 48,000 | |
| Advertising | | 19,000 | | | 43,000 | |
|
In
addition, you learn that the company incurred advertising costs of
$33,000 in year 2, owed the advertising agency $5,800 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.
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