Exercise 33-34 Revenue Recognition and matching
Carrico Advertising Inc. performs advertising services for several fortune 500 companies. The following information describes Carrico’s activities during 2011.
A. At the beginning of 2011, customers owed Carrico $45,800 for advertising services performed during 2010. During 2011, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2011.
B. At the beginning of 2011, Carrico had $13,350 of supplies on hand for which it owed suppliers $8,150. During 2011, Carrico purchased an additional $14,600 of supplies on credit. Carrico had $2,230 of supplies on hand at the end of 2011.
C. Carrico’s 2011 operating and interest expenses were $437,600 and $133,400, respectively.
1. Calculate Carrico’s 2011 income before taxes.
2. Calculate the amount of Carrico’s accounts receivable, supplies, and accounts payable at December 31, 2011.
3. Explain the underlying principles behind why the three accounts computed in part 2 exist.