I am having a diffiucult time figuring out the advertising expense. I have plugg
ID: 3194811 • Letter: I
Question
I am having a diffiucult time figuring out the advertising expense. I have plugged in several solutions and they are all incorrect.
Listed below are several transactions that took place during the second and third years of operations for RPG Company.
In addition, you learn that the company incurred advertising costs of $22,000 in year 2, owed the advertising agency $4,700 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.
Calculate accrual net income for both years.
Year 2 Year 3 Amounts billed to customers for services rendered $ 320,000 $ 420,000 Cash collected from credit customers 230,000 370,000 Cash disbursements: Payment of rent 77,000 0 Salaries paid to employees for services rendered during the year 137,000 157,000 Travel and entertainment 27,000 37,000 Advertising 13,500 32,000Explanation / Answer
Hi,
Since you've already answered the correct parts, I'll keep it down to 1) Advertising and 2) Net Income.
1) Advertising - "In addition, you learn that the company incurred advertising costs of $22,000 in year 2," this is it. That's the RPG Company's Year 2 expense on Advertising i.e $22,000. No complications there. The actual transaction that did occur was $13,500. But there's a difference between the costs and the actual transaction. So, you've got your Advertising costs for Year 2 = $22,000. Next, onto the Advertising costs for Year 3 -
The company has a debt of $4,700 at the end of Year 1 and have paid only $13,500 out of the advertising costs of $22,00 for Year 2. So till now, the debt that's compiled is $4,700 + $(22,000 - 13,500) = 4,700 + 8,500 = $13,200.
The company has paid up $32,000 leading to no liabilities at the end of Year 3 - which means they have paid the previous debt + expenses for year 3.
-> 32,000 = 13,200 + (Expenses Year 3)
Expenses Year 3 = 32,000 - 13,200 = $18,800.
2) Net Income - This should be simple now.
Net Income (Year 2) = 320,000 - 38,500 - 137,000 - 27,000 - 22,000 = $95,500
Net Income (Year 3) = 420,000 - 38,500 - 157,000 - 37,000 - 18,800 = $168,700
Answer:
Cheers!
Year 2 Year 3 Advertising $22,000 $18,800 Net income $95,500 $168,700Related Questions
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