Question

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 clients for services rendered $ 180,000 $ 230,000 Cash collected from clients 165,000 195,000 Cash disbursements Salaries paid to employees for services rendered during the year 95,000 105,000 Utilities 32,500 45,000 Purchase of insurance policy 61,500 0 In addition, you learn that the firm incurred utility costs of $37,500 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 firm would show in its year 1 and 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.

Answer 1