Question

Listed below are several transactions that took place during the second and third years of operations for RPG Company.

	Year 2			Year 3
Amounts billed to customers for services rendered	$	340,000		$	440,000
Cash collected from credit customers		250,000			390,000
Cash disbursements:
Payment of rent		79,000			0
Salaries paid to employees for services rendered during the year		139,000			159,000
Travel and entertainment		29,000			39,000
Advertising		14,500			34,000

In addition, you learn that the company incurred advertising costs of $24,000 in year 2, owed the advertising agency $4,900 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.

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.

Answer 1