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 per- formed 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 account. Carrico also paid $19,300 cash owed to suppliers for goods previously purchased 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.
Required:
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. Conceptual Connection: Explain the underlying principles behind why the three accounts computed in part 2 exist.