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 2Amounts billed to clients for services rendered $188,000 $238,000Cash collected from clients 169,000 199,000Cash disbursementsSalaries 99,000 109,000Utilities 34,500 49, 000Purchase of insurance policy 62,700 0In 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 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

Answer:

I have attached an Excel File that has all the required three Statements including Income Statements, Balance Sheet, and Cash Flow Statements.

Explanation:

Assumptions

• Insurance Amount has been taken as 62,700.
• It is also assumed that all the expenses were paid as incurred.

Methodology

• Cash Flow Statements has been prepared using Indirect Method. An increase in Accounts Receivable is a deduction while making adjustments.
• Income Statement has been prepared on Accrual Basis. That's why only Insurance Expense related to the period has been written off.

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