Reference no: EM132714591

In its first year of operations, 2020, Pronghorn Corp. invoiced $184,000 in service revenue. Of that amount, $22,000 was still owing from customers at the end of year. In 2020, Pronghorn incurred various operating expenses totalling $92,000, of which $80,000 was paid in cash. Salaries and wages paid to employees totalled $68,000 and $3,500 was still owing at the end of the year. In addition, Pronghorn prepaid $4,800 for insurance coverage that covered the last half of 2020 and the first half of 2021. Pronghorn estimates it will owe $8,100 in income tax when it files its corporate income tax return after its 2020 year end.

Question 1: Calculate the net income for 2020 under the accrual basis of accounting.

Question 2: Calculate the net income for 2020 under the cash basis of accounting.

Question 3: Which basis of accounting (accrual or cash) gives the most useful information for decision-makers?

• The (blank) select a basis basis of accounting provides more useful information for decision makers.