are several transactions that took place during the second and third years of op
ID: 2395662 • Letter: A
Question
are several transactions that took place during the second and third years of operations for the RPG E1-2 Accrual Listed below Company Year 2 $350,000 260,000 Year 3 Amounts billed to customers for services rendered Cash collected from credit customers Cash disbursements: $450,000 400.000 LO1-2 80,000 160,000 Payment of rent 140,000 Salaries paid to employees for services rendered during the year Travel and entertainment 30,000 15,000 40,000 35,000 Advertising In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no antici- pated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3. Required: I. Calculate accrual net income for both years. 2. Determie the amount due the advertising agency that would be shown as a liability on RPG's balance sheet at the end of year 2Explanation / Answer
Solution 1:
Advertising cost incurred in year 2 = $25,000
Amount due to advertising agency at the end of year 2 = Amount payable at the end of year 1 + Cost incurred - Payment made
= $5,000 + $25,000 - $15,000 = $15,000
Advertising cost incurred in year 3 = Payment made - Amount payable at the end of year 2 + Amount payable at the end of year 3 = $35,000 - $15,000 + $0 = $20,000
Solution 2:
Amount due the advertising agency that would be shown as liability on RPG's balance sheet at the end of year 2 =
Amount payable at the end of year 1 + Cost incurred - Payment made
= $5,000 + $25,000 - $15,000 = $15,000
Computation of Accural Net Income - RPG Company Particulars Year 2 Year 3 Service revenue $350,000.00 $450,000.00 Operating Expenses: Rent Expense $40,000.00 $40,000.00 Salary Expense $140,000.00 $160,000.00 Travel and entertainment $30,000.00 $40,000.00 Advertising Expense $25,000.00 $20,000.00 Net Income $115,000.00 $190,000.00Related Questions
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