In its first year of operations, Ramirez Company recognized $28,000in service revenue, $6,000of which was on account and still outstanding at year-end. The remaining $22,000was received in cash from customers.

The company incurred operating expenses of $15,800. Of these expenses, $12,000were paid in cash; $3,800was still owed on account at year-end. In addition, Ramirez prepaid $2,400for 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 accrual basis of accounting.