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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Exercise 3-44 Revenue Expense and Recognition

Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carrico’s activities during 2019.

  1. At the beginning of 2019, customers owed Carrico $45,800 for advertising services formed during 2018. During 2019, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2019.
  2. At the beginning of 2019, Carrico had $13,350 of supplies on hand for which it owed suppliers SS, 150. During 2019, Carrico purchased an additional $14,600 of supplies on account.

    Carrico also paid $19,300 cash owed to suppliers for goods previously purchased on credit. Carrico had of supplies on hand at the end of 2019.

  3. Carrico’s 2019 operating and interest were $437 and $133,400, respectively.

Required:

  1. Calculate Carrico’s 2019 income before taxes.
  2. Calculate the ending balance of receivable, the supplies used, and the ending balance of accounts payable.
  3. CONCEPTUAL CONNECTION Explain the underlying principles behind why the three accounts computed in Requirement 2 exist.

To determine

Concept Introduction:

Revenue Recognition Principle:

Revenue Recognition Principle states that the revenue should be recorded only when the goods or services are sold and delivered to the customer and the value of goods or service is determinable and collection of the money is not doubtful.

Requirement-1:

To Calculate:

The Income before taxes for the year 2019.

Explanation

The Income before taxes for the year 2019 is calculated as follows:

    Carrico Advertising Inc.
    Income Statement
    For the year 2019
    Service Revenue $ 695,100
To determine

Concept Introduction:

Revenue Recognition Principle:

Revenue Recognition Principle states that the revenue should be recorded only when the goods or services are sold and delivered to the customer and the value of goods or service is determinable and collection of the money is not doubtful.

Requirement-2:

To Calculate:

The ending balance of accounts receivable, Supplies used, and the ending balance of accounts payable.

To determine

Concept Introduction:

Revenue Recognition Principle:

Revenue Recognition Principle states that the revenue should be recorded only when the goods or services are sold and delivered to the customer and the value of goods or service is determinable and collection of the money is not doubtful.

Requirement-3:

To Indicate:

The accounting principle used in calculation above balances.

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