Listed below are several transactions that took place during the second and thir

Question

Listed below are several transactions that took place during the second and third years of operations for RPG Company. Year 3 $ 430, 000 530, 000 480, 000 Year 2 Amounts billed to customers for services rendered Cash collected from credi t customers Cash disbursements: Payment of rent Salaries paid to employees for services rendered during the year Travel and entertainment Advertising 340, 000 88, 000 148,000 38, 000 19,000 168, 000 48, 000 43, 000 In addition, you learn that the company incurred advertising costs of $33,000 in year 2, owed the advertising agency $5,800 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

Explanation / Answer

(1)

Year 2

Year 3

Revenues

430000

530000

Expenses:

Rent

44000

44000

Salaries

148000

168000

Travel & Entertainment

38000

48000

Advertising

33000

23200*

Net Income

167000

246800

*43000 - [(33000 – 19000) + 5800]

(2) Advertising Liability at the end of year 2 = (33000 – 19000) + 5800 = $19800

Year 2

Year 3

Revenues

430000

530000

Expenses:

Rent

44000

44000

Salaries

148000

168000

Travel & Entertainment

38000

48000

Advertising

33000

23200*

Net Income

167000

246800

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