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

Year 2Year 3Amounts billed to customers for services rendered$300,000$400,000Cash collected from credit customers210,000350,000Cash disbursements:Payment of rent75,0000Salaries paid to employees for services rendered during the year135,000155,000Utilities25,00035,000Advertising12,50030,000

In addition, you learn that the company incurred advertising costs of $20,000 in year 2, owed the advertising agency $4,500 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 RPG's balance sheet at the end of year 2.

Calculate accrual net income for both years.

Year 2 Year 3

Revenues

Expenses:

Rent

Salaries

Utilities

Advertising

Net income