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 $ 188,000 $ 238,000
Cash collected from clients 169,000 199,000
Cash disbursements Salaries paid to employees for services rendered during the year 99,000 109,000
Utilities 34,500 49,000
Purchase of insurance policy 62,700 0
In addition, you learn that the firm incurred utility costs of $39,500 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. Calculate the net operating cash flow for years 1 and 2. (Net cash outflows should be indicated by a minus sign.) Year 1 Year 2 Net operating cash flow
2. Prepare an income statement for each year according to the accrual accounting model PETE, PETE, AND ROY Income Statements Year 1 Year 2 Revenues Expenses Salaries Utilities Insurance Net income (loss)