Revenue and Expense Recognition and Closing Entries Two years ago Sue Stern opened an audio book rental shop. Sue reports the following accounts on her income statement:

Sales $84,000 Advertising expense 10,500 Salaries expense 12,000 Depreciation on tapes 5,000 Rent expense 18,000 These amounts represent two years of revenue and expenses. Sue asks you how she can tell how much of the income is from the first year and how much is from the second year of business. She provides the following additional data:

a. Sales in the second year are triple those of the first year.

b. Advertising expense is for a $1,500 opening promotion and weekly ads in the newspaper.

c. Salaries represent one employee who was hired eight months ago. No raises have been granted.

d. Rent has not changed since the shop opened.

Required 1. Prepare income statements for Years 1 and 2.

2. Prepare the closing entries for each year. Prepare a short explanation for Sue about the purpose of closing temporary accounts.