In its first year of operations, Pharoah Company recognized $34,000in service revenue, $8,100of which was on account and still outstanding at year-end. The remaining $25,900was received in cash from customers.

The company incurred operating expenses of $17,100. Of these expenses, $12,940were paid in cash; $4,160was still owed on account at year-end. In addition, Pharoah prepaid $2,780for insurance coverage that would not be used until the second year of operations.

(a)Calculate the first years net earnings under the cash basis of accounting, and the first years net earnings under the accrual basis of accounting.