In its first year of operations, 2020, Strats Corp. invoiced $172,000 in service revenue. Of that amount, $18,000 was still owing from customers at the end of year. In 2020, Strats incurred various operating expenses totalling $81,000, of which $77,500 was paid in cash. Salaries and wages paid to employees totalled $61,500 and $2,500 was still owing at the end of the year. In addition, Strats prepaid $4,000 for insurance coverage that covered the last half of 2020 and the first half of 2021. Strats estimates it will owe $9,000 in income tax when it files its corporate income tax return after its 2020 year end.

Instructions

a. Calculate the net income for 2020 under the accrual basis of accounting.

b. Calculate the net income for 2020 under the cash basis of accounting.

c. Which basis of accounting (accrual or cash) gives the most useful information for decision-makers? Explain.