P3-62A. (Learning Objective 1: Comparing cash basis and accrual basis) Ethan Consulting had the following transactions in May:

Requirements 1. Show how each transaction would be handled using the cash basis and the accrual basis.
2. Compute May income (loss) before tax under each accounting method.
3. Indicate which measure of net income or net loss is preferable. Use the transactions on May 11 and May 24 to explain.

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May 1 4 5 8 11 19 24 26 29 31 31 Prepaid insurance for May through September, $400. Purchased software for cash, $700. Performed services and received cash, $800. Paid advertising expense, $500. Performed service on account, $3,600. Purchased computer on account, $1,300. Collected for May 11 service. Paid account payable from May 19. Paid salary expense, $600. Adjusted for May insurance expense (see May 1). Earned revenue of $400 that was collected in advance back in April.