Revenue and Expense Recognition 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 CDs 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 fi rst 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 fi rst 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 Prepare income statements for Years 1 and 2.

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