Chapter 4, Problem 4.19E

Consider the following information:

  1.    Service Revenue for the year = $80,000. Of this amount, $70,000 is collected during the year and $10,000 is expected to be collected next year.

  2.    Salaries Expense for the year = $40,000. Of this amount, $35,000 is paid during the year and $5,000 is expected to be paid next year.

3.    Advertising Expense for the year = $10,000. All of this amount is paid during the year.

4.    Supplies Expense for the year = $4,000. No supplies were purchased during the year.

  5.    Utilities Expense for the year = $12,000. Of this amount, $11,000 is paid during the year and $1,000 is expected to be paid next year.

  6.    Cash collected in advance from customers for services to be provided next war (Unearned Revenue) = $2,000.

Required:

1.    Calculate operating cash flows.

2.    Calculate net income.

3.    Explain why these two amounts differ.