Listed below are several transactions that took place during

Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy. Year 1 Year 2 $172,000 $222,000 159,000 189,000 Amounts billed to clients for services rendered Cash collected from clients Cash disbursements Salaries paid to employees for services rendered during the year Utilities Purchase of insurance policy 89,000 99,000 29,500 39,000 59,700 In addition, you learn that the company incurred utility costs of $34,500 in year 1, that there were no liabilities at the end of year 2, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period Required 1. & 3. Calculate the net operating cash flow for years 1 and 2 and determine the amount of receivables from clients that the company would show in its year 1and year 2 balance sheets prepared according to the accrual accounting model. 2. Prepare an income statement for each year according to the accrual accounting model. Complete this question by entering your answers in the tabs below. Req 1 and 3Rcq2

Solution

Answer 1:

Year 1:

Cash Inflow = $159,000

Cash Outflow = Salaries paid + Utilities + Purchase of Insurance Policy
Cash Outflow = $89,000 + $29,500 + $59,700
Cash outflow =$178,200

Net Operating Cash Flow = Cash Inflow – Cash Outflow
Net Operating Cash Flow = $159,000 - $178,200
Net Operating Cash Flow = -$19,200

Year 2:

Cash Inflow = $189,000

Cash Outflow = Salaries paid + Utilities
Cash Outflow = $99,000 +$39,000
Cash Outflow = $138,000

Net Operating Cash flow = Cash Inflow – Cash Outflow
Net Operating cash flow = $189,000 – $138,000
Net Operating Cash Flow = $51,000

Answer 2:

Year 1

Year 2

Revenues

172,000

222,000

Less Expenses:

Salaries

Utilities

Insurance

89,000

34,500

19,900

99,000

34,000

19,900

Net Income

28,600

69,100

Explanation :

Utilities Expense for Year 2 = Utilities Paid of 2year – Utilities Outstanding for Year 1
Utilities Expense for Year 2 = $39,000 - $5,000
Utilities Expense for Year 2 = $34,000

Answer 3:

Year 1:

Account Receivable, Year 1 = Amount billed to customer – Cash collected from customer
Account Receivable, Year 1 = $172,000 - $159,000
Account Receivable, Year 1 = $13,000

Year 2:

Ending Accounts Receivable, Year 2 = Beginning Accounts Receivable + Amount Billed to customer during the year – Cash Collected during the year
Ending Accounts Receivable, Year 2 = $13,000 + $222,000 - $189,000
Ending Accounts Receivable, Year 2 = $46,000

	Year 1	Year 2
Revenues	172,000	222,000
Less Expenses: Salaries Utilities Insurance	89,000 34,500 19,900	99,000 34,000 19,900
Net Income	28,600	69,100