Your examination of the records of Northland Corp. shows the company collected $78,100 in cash from customers and paid $53,900 in cash for operating costs in its first year of operations. If Northland followed the accrual basis of accounting, it would report the following year-end balances in selected accounts:

Accounts payable......................................$ 905

Accounts receivable...................................1,450

Accumulated depreciation...........................8,625

Income tax payable....................................4,600

Prepaid insurance........................................810

Unearned revenue.......................................700

Instructions

(a) Calculate Northland's profit on a cash basis for the year.

(b) Calculate Northland's profit on an accrual basis for the year.

(c) Which basis of accounting do you recommend Northland use? Why?