Listed below are several transactions that took place during the second and third years of operations for the RPG Company.

	Year 2	Year 3
Amounts billed to customers for services rendered	$ 280,000	$ 380,000
Cash collected from credit customers	190,000	330,000
Cash disbursements:
Payment of rent	73,000	0
Salaries paid to employees for services rendered during the year	133,000	153,000
Utilities	23,000	33,000
Advertising	11,500	28,000

In addition, you learn that the company incurred advertising costs of $18,000 in year 2, owed the advertising agency $4,300 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

Required:

1.Calculate accrual net income for both years.

2.Determine the amount due the advertising agency that would be shown as a liability on RPGs balance sheet at the end of year 2.

Required 1

Calculate accrual net income for both years.

	Year 2	Year 3
Revenues	$280,000selected answer correct	$380,000selected answer correct
Expenses:
Rent	(36,500)selected answer correct	(36,500)selected answer correct
Salaries	(133,000)selected answer correct	(153,000)selected answer correct
Utilities	(23,000)selected answer correct	(33,000)selected answer correct
Advertising	(18,000)selected answer correct
Net income	not attempted	not attempted

Required 2

Determine the amount due the advertising agency that would be shown as a liability on RPGs balance sheet at the end of year 2.

Advertising liability at end of Year 2