Listed below are several transactions that took place during the second and third years of operations for the RPG Company. Year 2 Year 3 Amounts billed to customers for services $350,000 $450,000 Cash collected from credit customers 260,000 400,000 Cash disbursements Payment of rent 80,000 0 Salaries paid to employees for services rendered during the year 140,000 160,000 Travel and entertainment 30,000 40,000 Advertising 15,000 35,000 In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 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. Required: 1. Calculate accrual net income for both years. 2. Determine the amount due the advertising agency that would be shown as a liability on RPG’s balance sheet at the end of the year2.

For Year 2 = Amounts billed to customers for services - Payment of rent - Salaries paid to employees for services rendered during the year - Travel and entertainment - advertising expense

= $350,000 - $40,000 - $140,000 - $30,000 - $25,000

= $115,000

For Year 3 = Amounts billed to customers for services - Payment of rent - Salaries paid to employees for services rendered during the year - Travel and entertainment

= $450,000 - $40,000 - $160,000 - $40,000 - $20,000

= $190,000

The rent payment is for the 2 years so the amount is divided equally.

And, the advertising expenditure is $25,000 for the year 2 and $20,000 for the year 3 ($25,000 - $5000)

2. The computation of the amount which is due to the advertising agency is shown below:

Advertising agency owed at the end of the year 1 $5,000

Advertising cost at the end of year 2 $25,000

Total amount = $30,000

Less: advertising expense paid in the year 2 ($15,000)

Less: advertising expense paid in the year 2 ($35,000)

The amount which is due to the advertising agency = $20,000

marvineetesh3 marvineetesh3 · Answer 2 · 2022-02-15T14:40:44+01:00

Net income is the amount of total income that is received after deducting the taxes, allowances and taxes.

1. The net income For Year 2 is $115,000, and for Year 3 is $190,000.

2. The amount which is due to the advertising agency is -$20,000

What is the net income?

Net income is defined as the aggregation of all the income which is received after deducting the amount of taxes, and other expenses, and it is found at the end of the income statement.

1. The computation of the net income for both the years:

According to the question,

The rent payment is given the 2 years, therefore it will be divided equally.

The advertising expenditure for 2 year= $25,000 and

The advertising expenditure for 3 year=$20,000 ($25,000—$5000)

For 2nd year:

[tex]\text{Net Income} = \text{Amount Billed to Customers} - \text{Rent Payment} - \text{Salaries Paid to employees} - \text{Travel and Entertainment} - \text{Advertising Expense}\\\\\text{Net Income} = \$350,000 - \$40,000 - \$140,000 - \$30,000 - \$25,000\\\\\text{Net Income} = \$115,000[/tex]

For 3rd year:

[tex]\text{Net Income}=\text{ Amounts Billed To Customers} - \text{ Payment of Rent} - \text{Salaries Paid To Employees} - \text{Travel and Entertainment}-\text{Advertising Expense}\\\\\\\text{Net Income}=\$450,000 - \$40,000 -\$160,000 - \$40,000 - \$20,000\\\\\\\text{Net Income} = \$190,000[/tex]

2. The computation of the amount which is due to the advertising agency is shown :

[tex]\text{Advertising Agency} = \text{Agency Owed at the End of The (1st year+ 2nd year)}-\text{Advertising Expense Paid in the( Year 2- Year 3) }\\\\\\\text{Advertising Agency} = \$5,000+\$25,000-\$15,000-\$35,000\\\\\\\text{Advertising Agency} =-\$20,000[/tex]

Therefore, the advertising agency would be -$20,000.

Learn more about the net income, refer:

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