Question

Year 2 Year 3 $260,000 $360,000 170,000 310,000 Amounts billed to customers for services rendered Cash collected from credit customers Cash disbursements: Payment of rent Salaries paid to employees for services rendered during the year Utilities Advertising 71,000 131,000 21,000 10,500 0 151,000 31,000 26,000 In addition, you learn that the company incurred advertising costs of $16,000 in year 2, owed the advertising agency $4,100 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. 2. Determine the amount due the advertising agency that would be shown as a liability on RPG's balance sheet at the end of year 2. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate accrual net income for both years. Year 2 Year 3 Revenues Expenses: Rent Salaries Utilities Advertising Net income

Answer 1

Answer -

1. Answer -

	Year 2	Year 3
Revenues	$260000	$360000
Expenses:
Rent	$35500	$35500
Salaries	$131000	$151000
Utilities	$21000	$31000
Advertising	$16000	$16400
Net income	$56500	$126100

Calculation:

1. Rent expense:

As per given information,

Rent payment was for a two-year period, Year 2 and Year 3.

So,

= $71000 / 2 years = $35500 for each year

2. Advertising expense (Year 3):

= Amount paid during Year 3 - Advertising liability at end of Year 2

= $26000 - $9600

= $16400

3. Net income:

Year 2:

Net income = Revenues - [Rent + Salaries + Utilities + Advertising]

Net income = $260000 - [$35500 + $131000 + $21000 + $16000]

Net income = $56500

Year 3:

Net income = Revenues - [Rent + Salaries + Utilities + Advertising]

Net income = $360000 - [$35500 + $151000 + $31000 + $16400]

Net income = $126100

2. Answer -

Advertising liability at end of Year 2 = $9600

Calculation:

Advertising liability at end of Year 2:

= Liability at end of Year 1 + Cost incurred during the Year 2 - Amount paid during Year 2

= $4100 + $16000 - $10500

= $9600