In its first year of operations, Ivanhoe Company recognized $28,560 in service revenue, $6,120 of which was on account and still outstanding at year-end. The remaining $22,440 was received in cash from customers. The company incurred operating expenses of $16,116. Of these expenses, $12,240 were paid in cash; $3,876 was still owed on account at year-end. In addition, Ivanhoe prepaid $2,448 for insurance coverage that would not be used until the second year of operations. (a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first year's net earnings under the accrual basis of accounting. Cash Basis Net Income $ Accrual Basis $ (b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?

In its first year of operations, Ivanhoe Company recognized $28,560 in service revenue, $6,120 of which was on account and still outstanding at year-end. The remaining $22,440 was received in cash from customers. The company incurred operating expenses of $16,116. Of these expenses, $12,240 were paid in cash; $3,876 was still owed on account at year-end. In addition, Ivanhoe prepaid $2,448 for insurance coverage that would not be used until the second year of operations. (a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first year's net earnings under the accrual basis of accounting. Cash Basis Net Income $ Accrual Basis $ (b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?

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Description: In its first year of operations, Ivanhoe Company recognized $28,560 in service revenue, $6,120 of which was on account and stilloutstanding at year-end. The remaining $22,440 was received in cash from customers.The company incurred operating expense

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business, at least two accounts should be affected I.e. both the debit side and the credit side should be equal. The Accounting Equation is

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Question

In its first year of operations, Ivanhoe Company recognized $28,560 in service revenue, $6,120 of which was on account and still
outstanding at year-end. The remaining $22,440 was received in cash from customers.
The company incurred operating expenses of $16,116. Of these expenses, $12,240 were paid in cash; $3,876 was still owed on
account at year-end. In addition, Ivanhoe prepaid $2,448 for insurance coverage that would not be used until the second year of
operations.
(a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first year's net earnings under the
accrual basis of accounting.
Cash Basis
Net Income
$
Accrual Basis
$
(b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?

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