Listed below are several transactions that took place during the first two years

Question

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

In addition, you learn that the company incurred utility costs of $38,500 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:
1. & 3. Calculate the net operating cash flow for years 1 and 2 and determine the amount of receivables from clients that the company 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.
  

Year 1 Year 2 Amounts billed to clients for services rendered $ 184,000 $ 234,000 Cash collected from clients 167,000 197,000 Cash disbursements Salaries paid to employees for services rendered during the year 97,000 107,000 Utilities 33,500 47,000 Purchase of insurance policy 62,100 0

Explanation / Answer

Net Operating Cash Flows Year 1 Year 2 Cash collected from client           167,000        197,000 Less; Cash Disbursement Salaries             97,000        107,000 Utlities             33,500           47,000 Purcgase of insurance policy             62,100                    -   Net Operating Cash flow           (25,600)           43,000 Amount of Receivables Year 1 Year 2 Opeing balance of receivables                       -             17,000 Amoount billed to customer           184,000        234,000 Less: Cash collected         (167,000)      (197,000) Ending Accounts receivables             17,000           54,000 Income Statement Year 1 Year 2 Revenue           184,000        234,000 Less; Expenses Salaries             97,000        107,000 Utlities             33,500           47,000 Purcgase of insurance policy             62,100                    -   Net Income             (8,600)           80,000

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