Question

Professional Headhunters, Inc. (PHI), is a job placement company that operates in the northeastern United States. During Year 1, the company earned $145,000 in revenue by providing services to customers. However, it collected only $120,000 of the revenue in cash. PHI expected to collect the remaining $25,000 in Year 2. In addition, PHI incurred $80,000 of expenses. However, by the end of Year 1, PHI had paid only $75,000 of the cash owed for expenses because it had not yet paid $5,000 to employees who had worked during Year 1 but had not been paid by the end of the year. PHI expected to pay the $5,000 in cash to the employees during Year 2. Based on this information alone, determine the amount of net income, total assets, and total liabilities PHI should report on its Year 1 financial statements.

Answer 1

Professional Headhunters, Inc. (PHI)

i) Net Income = Revenue minus Expenses

= $145,000 - $80,000

= $65,000

ii) Total assets = Cash balance plus Accounts Receivable balance

= $45,000 + $25,000

= $70,000

iii) Total liabilities = Accounts payable

= $5,000

Step-by-step explanation:

Earned Revenue = $145,000

Collection from customers = $120,000

Accounts receivable balance = $25,000

Expenses incurred = $80,000

Cash payment for expenses = $75,000

Accounts payable for expense = $5,000

Cash balance:

Collection from customers = $120,000

Cash payment for expenses = $75,000

Cash balance = $45,000