Question

Listed below are several transactions that took place during the second and third years of operations for RPG Consulting. Year 2 Year 3Amounts billed to customers for services rendered $ 320,000 $ 420,000 Cash collected from credit customers 230,000 370,000 Cash disbursements: Payment of rent 77,000 0 Salaries paid to employees for services rendered during the year 137,000 157,000 Utilities 27,000 37,000 Advertising 13,500 32,000 In addition, you learn that the company incurred advertising costs of $22,000 in year 2, owed the advertising agency $4,700 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 3.1. Calculate accrual net income for both years.2. Determine the amount due the advertising agency that would be shown as a liability on RPG’s balance sheet at the end of year 2.

Answer 1

Answer:

RPG Consulting

1. RPG Consulting Income Statements:

                                                  Year 2            Year 3

Service Revenue                $ 320,000     $ 420,000

Expenses:

Rent                                          38,500          38,500

Salaries                                   137,000         157,000

Utilities                                     27,000          37,000

Advertising                              22,000           18,800

Total Expenses                   $224,500      $251,300

Accrual Net Income             $95,500      $168,700

2. Amount due to the advertising agency at the end of year 2 = $13,200.

Explanation:

a) Data and Calculations:

                                                                   Year 2          Year 3

Amounts billed to customers

 for services rendered                       $ 320,000    $ 420,000

Cash collected from credit customers  230,000       370,000

Cash disbursements:

Payment of rent                                         77,000       0

Salaries paid to employees for services 137,000       157,000

Utilities                                                        27,000        37,000

Advertising                                                  13,500        32,000

Advertising:

Year 1   Ending Balance (Credit)    $4,700

Year 2  Expense                            22,000

Year 2  Cash payment                  (13,500)

Year 2  Ending balance (Credit)    13,200

Year 3  Cash payment                 (32,000)

Year 3  Expense                           $18,800

Rent:

Year 1 = $38,500

Year 2 - $38,500