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 $ 170,000 $ 220,000
Cash collected from clients 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 firm 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 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.
Revenues not attempted not attempted
Expenses:
Salaries 90,000selected answer correct 100,000selected answer correct
Utilities 30,000selected answer incorrect 40,000selected answer incorrect
Insurance 60,000selected answer incorrect 0selected answer incorrect
Net income (loss)

Pete, Pete, and Roy

1. Net operating cash flow for years 1 and 2

                                                Year 1        Year 2

Cash collected from clients  $160,000     190,000

Cash disbursements

Salaries paid to employees     90,000     100,000

Utilities                                      30,000      40,000

Purchase of insurance policy  60,000     0

Total disbursements            $180,000   $140,000

Net operating cash flow      ($20,000)   $50,000

3. Amount of receivables in year 1 and 2:

                                               Year 1        Year 2

Beginning balance                                  $10,000

Amounts billed to clients for

 services rendered            $ 170,000 $ 220,000

Cash collected from clients  160,000     190,000

Balance                                 $10,000    $40,000

2. Pete, Pete, and Roy

Income Statements for years 1 and 2:

                                               Year 1        Year 2

Service Revenue              $ 170,000 $ 220,000

Expenses:

Salaries expense                  90,000     100,000

Utilities expense                  35,000       35,000

Insurance expense              20,000      20,000

Total expenses                $145,000   $155,000

Net income                      $25,000     $65,000

Explanation:

a) Data and Calculations:

                                               Year 1        Year 2

Amounts billed to clients for

 services rendered            $ 170,000 $ 220,000

Cash collected from clients  160,000     190,000

Cash disbursements

Salaries paid to employees   90,000     100,000

Utilities                                    30,000      40,000

Purchase of insurance policy 60,000     0

Utility costs incurred in year 1 = $35,000

Net operating cash flow for years 1 and 2

                                                Year 1        Year 2

Cash collected from clients  $160,000     190,000

Cash disbursements

Salaries paid to employees     90,000     100,000

Utilities                                      30,000      40,000

Purchase of insurance policy  60,000     0

Total disbursements            $180,000   $140,000

Net operating cash flow      ($20,000)   $50,000

Insurance expense per year = $60,000/3 = $20,000

Utilities for year 1 = $35,000

Utilities for year 2 = $35,000