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masha68 [24]
2 years ago
9

In its first year of operations, Crane Company recognized $29,500 in service revenue, $6,100 of which was on account and still o

utstanding at year-end. The remaining $23,400 was received in cash from customers. The company incurred operating expenses of $15,500. Of these expenses, $12,010 were paid in cash; $3,490 was still owed on account at year-end. In addition, Crane prepaid $2,300 for insurance coverage that would not be used until the second year of operations.
1. Calculate the first year's net earnings under the cash basis of accounting, and the first year's net earnings under the accrual basis of accounting. 2. Which basis of accounting (cash or accrual) provides more useful information for decision-makers?
Business
1 answer:
Montano1993 [528]2 years ago
8 0

Answer: See explanation

Explanation:

1. Calculate the first year's net earnings under the cash basis of accounting, and the first year's net earnings under the accrual basis of accounting.

The first year's net earnings under the cash basis of accounting will be:

Service revenue = $23400

Less: Expenses = $14310

Net income = $9090

The first year's net earnings under the accrual basis of accounting will be:

Service revenue = $29500

Less: Expenses = $15500

Net income = $14000

2. Which basis of accounting (cash or accrual) provides more useful information for decision-makers?

It should be noted that the accrual basis of accounting gives decision makers more useful information. This is due to the fact that the decision makers will probably want to know the revenue and the expenses that were incurred for a particular period and every other necessary details.

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You need to accumulate $10,000. To do so, you plan to make deposits of $1,000 per year - with the first payment being made a yea
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It will take 6.68 years to reach the $10,000 goal.

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As the deposit of $1,000 per year is a form of the annuity payment.

We will use the following formula in order to calculate the numbers of year required to reach the goal

Future value of Annuity = Annuity payment x ( ( ( 1 + interest rate )^numbers of years ) - 1 ) / Interest rate

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Placing values in the formula

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