Guardian Insurance Agency adjusts its accounts monthly but closes them only at the end of the calendar year. Below are the adjusted balances of the revenue and expense accounts at September 30 of the current year and at the ends of two earlier months:
| Sept. 30 | Aug. 31 | June 30 |
Commissions earned | $144,000 | $128,000 | $90,000 |
Advertising expense | 28,000 | 23,000 | 15,000 |
Salaries expense | 36,000 | 32,000 | 24,000 |
Rent expense | 22,500 | 20,000 | 15,000 |
Depreciation expense | 2,700 | 2,400 | 1,800 |
Instructions
a. Prepare a three-column income statement, showing net income for three separate time peri ods. all of which end on September 30. Use the format illustrated below. Show supporting computations for the amounts of revenue reported in the first two columns.
GUARDIAN INSURANCE AGENCY Income Statement For the Following Time Periods in 2007 | |||
| Month Ended Sept. 30 | Quarter Ended Sept. 30 | 9 Months Ended Sept. 30 |
Revenue: |
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|
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| ___________ | _________ | __________ |
Expenses: |
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b. Briefly explain how you determined the dollar amounts for each of the three time periods. Would you apply the same process to the balances in Guardian’s balance sheet accounts? Explain.
c. Assume that Guardian adjusts and closes its accounts at the end of each month. Briefly explain how you then would determine the revenue and expenses that would appear in each of the three columns of the income statement prepared in part a.
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