Your examination of the records of Southlake Corp. shows the company collected $187,800 in cash from customers and paid $109,400 in cash for operating costs in its first year of operations. If Southlake followed the accrual basis of accounting, it would report the following year-end balances in selected accounts:

Accounts payable.....................................$ 3,000

Accounts receivable....................................8,400

Accumulated depreciation...........................24,600

Income tax payable....................................15,800

Prepaid insurance.......................................3,000

Unearned revenue.......................................2,800

Instructions

(a) Calculate Southlake's profit on a cash basis for the year.

(b) Calculate Southlake's profit on an accrual basis for the year.

(c) Which basis of accounting do you recommend Southlake use? Why?