Answer:
Income statement for year 1
Service revenue $180,000
Operating expenses:
- Employees salaries $85,000
- Utilities $32,500
- Insurance expense $19,500 <u>$137,000</u>
Net income $43,000
Income statement for year 2
Service revenue $230,000
Operating expenses:
- Employees salaries $95,000
- Utilities $30,000
- Insurance expense $19,500 <u>$144,500</u>
Net income $85,500
Year 1 accounts receivable balance = $180,000 - $155,000 = $25,000
Year 2 accounts receivable balance = $230,000 - $185,000 + $25,000 = $70,000
Cash flows from operating activities year 1:
Net income $43,000
Adjustments to net income:
Increase in accounts payable $5,000
Increase in accounts receivable ($25,000)
Increase in prepaid insurance ($39,000)
Net cash provided by operating activities ($16,000)
Cash flows from operating activities year 1:
Net income $85,500
Adjustments to net income:
Decrease in prepaid insurance $19,500
Increase in accounts receivable ($45,000)
Decrease in accounts payable ($5,000)
Net cash provided by operating activities $55,000
