Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, a

Question

3 years ago

12

Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, a

nd Roy. Year 1 Year 2 Amounts billed to clients for services rendered$184,000 $234,000 Cash collected from clients 153,000 183,000 Cash disbursements Salaries paid to employees for services rendered during the year 83,000 93,000 Utilities 26,500 33,000 Purchase of insurance policy 57,900 0 In addition, you learn that the firm incurred utility costs of $31,500 in year 1, that there were no liabilities at the end of year 2, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period. Required:

Business

1 answer:

seropon [69] · Answer 1 · 2022-10-11T04:28:43+03:00

Answer:

1. We have:

Net operating cash flow for Year 1 = -$13,500

Net operating cash flow for Year 2 = $57,000

2. We have:

Net income for Year 1 = $50,500

Net income for Year 2 = 94,000

3. We have:

Amount of receivables from customers to show in Year 1 balance sheets = $31,000

Amount of receivables from customers to show in Year 2 balance sheets = $82,000

Explanation:

Note: This question is not complete as the requirements are omitted. The complete question is therefore provided before answering the question. See the attached pdf file for the complete question.

Explanation of the answers is now given as follows:

1. Calculate the net operating cash flow for years 1 and 2. (Net cash outflows should be indicated by a minus sign.)

Note: See Part 1 of the attached excel file for the calculation of Net Operating Cash Flow for Year 1 and Year 2. From it, we have:

Net operating cash flow for Year 1 = -$13,500

Net operating cash flow for Year 2 = $57,000

2. Prepare an income statement for each year according to the accrual accounting model.

Note: See Part 2 of the attached excel file for the Income statements for Year 1 and Year 2. From it, we have:

Net income for Year 1 = $50,500

Net income for Year 2 = 94,000

Also note that Utilities for Year 2 is calculated as follows:

Utilities for Year 2 = Cash disbursements to Year 2 Utilities - (Utilities for Year 1 - Cash disbursements to Year 1 Utilities) = $33,000 - ($31,500 - $26,500) = $28,000

3. Determine the amount of receivables from customers that the company would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.

Note: See Part 3 of the attached excel file for the Determination of ending receivables for Year 1 and Year 2. From it, we have:

Amount of receivables from customers to show in Year 1 balance sheets = Ending receivables from customers in Year 1 = $31,000

Amount of receivables from customers to show in Year 2 balance sheets = Ending receivables from customers in Year 2 = $82,000

Download xlsx