[SangitaBP]

Listed below are several transactions that took place during the second two years of operations for RPG Consulting.

Year 2 Year3
Amounts billed to customers for services rendered $440,000 $540,000
Cash collected from credit customers 350,000 490,000
Cash disbursements:
Payment of rent 89,000 0
Salaries paid to employees for services rendered during the year

149,000 169,000
Travel and entertainment 39,000 49,000
Advertising 19,500 44,000

In addition, you learn that the company incurred advertising costs of $34,000 in year 2, owed the advertising agency $5,900 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

Required:
1.
Calculate accrual net income for both years.

Year 2 Year 3
Revenues: $440,000 $540,000
Expenses:
Rent 44,500 44,500
Salaries 149,000 169,000
Travel and Entertainment 39,000 49,000
Advertising?
Net Income?


2.Determine the amount due the advertising agency that would be shown as a liability on the RPG’s balance sheet at the end of year 2.

Advertising Liability at end of Year 2: ?

[ma0641]

Well, what have you learned in class so far? We don't do your homework but will help you if you try.

[SangitaBP]

I just can't figure out the advertising expenses... I think I'm not understanding the difference between cash base and accrual base.

[SangitaBP]

Homework finished!

[pready]

Cash basis accounting is very simple. When cash is received you record revenues and when cash is paid you record expenses.