IMG Co. guarantees the quality of its instructional services. IMG earned $60,000 of cash revenue from instructional services in Year 1. The company estimates that future warranty claims will be 10 percent of revenue. During Year 1, IMG Co. paid $1800 cash on warranty claims. Based on this information, the amount of net income and the net change in cash for Year 1 would be

1. $58,200 / $54,000.
2. $54,000 / $58,200.
3. $54,000 / 54,000.
4. $52,200 / $54,000.