Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy.
Year 1 Year 2
Amounts billed to clients for services rendered $ 170,000 $ 220,000
Cash collected from clients 160,000 190,000
Cash disbursements
Salaries paid to employees for services rendered during the year 90,000 100,000
Utilities 30,000 40,000
Purchase of insurance policy 60,000 0
In addition, you learn that the firm incurred utility costs of $35,000 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:
1. & 3. Calculate the net operating cash flow for years 1 and 2 and determine the amount of receivables from clients that the firm would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.
2. Prepare an income statement for each year according to the accrual accounting model.
Revenues not attempted not attempted
Expenses:
Salaries 90,000selected answer correct 100,000selected answer correct
Utilities 30,000selected answer incorrect 40,000selected answer incorrect
Insurance 60,000selected answer incorrect 0selected answer incorrect
Net income (loss)