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
Amounts billed to customers for services rendered ..................................... $170,000 $220,000
Cash collected from customers ..................................................................... 160,000 190,000
Cash disbursements: ......................................................................................
Salaries paid to employees for services rendered during the year .......... 90,000 100,000
Utilities ....................................................................................................... 30,000 40,000
Purchase of insurance policy ..................................................................... 60,000 -0-
In addition, you learn that the company incurred utility costs of $35,000 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 threeyear
period.
Required:
1. Calculate the net operating cash flow for years 1 and 2.
2. Prepare an income statement for each year similar to Illustration 1-3 on page xxx according to the accrual accounting model.
3. Determine the amount of receivables from customers that the company would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.