Calculate the first year net earnings under the cash basis

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Reference no: EM132630969

In its first year of operations, Pharoah Company recognized $31,800 in service revenue, $6,400 of which was on account and still outstanding at year-end. The remaining $25,400 was received in cash from customers.

The company incurred operating expenses of $16,600. Of these expenses, $12,730 were paid in cash; $3,870 was still owed on account at year-end. In addition, Pharoah prepaid $2,390 for insurance coverage that would not be used until the second year of operations.

Problem 1: Calculate the first year's net earnings under the cash basis of accounting, and the first year's net earnings under the accrual basis of accounting.

Reference no: EM132630969

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