Wyoming Corporation was formed during 2006 by Sandra Lee. Sandra is the president and sole stockholder. At December 31, 2007, Sandra prepared an income statement for Wyoming Corporation. Sandra is not an accountant, but she thinks she did a reasonable job preparing the income statement by looking at the financial statements of other companies.

She has asked you for advice. Sandra's income statement appears as follows.

WYOMING CORPORATION Income Statement For the Year Ended December 31, 2007 Accounts receivable $17,000 Revenue 60,000 Rent expense 12,000 Insurance expense 5,000 Vacation expense 2,000 Net income 58,000 Sandra has also provided you with these facts. 1. Included in the revenue account is $3,000 of revenue that the company earned and received payment for in 2006. She forgot to include it in the 2006 income statement, so she put it in this year’s statement. 2. Sandra operates her business out of the basement of her parents’ home. They do not charge her anything, but she thinks that if she paid rent it would cost her about $12,000 per year. She therefore included $12,000 of rent expense in the income statement. 3. To reward herself for a year of hard work, Sandra went to Greece. She did not use company funds to pay for the trip, but she reported it as an expense on the income statement since it was her job that made her need the vacation.

Instructions

(a) Comment on the proper accounting treatment of the three items above.

(b) Prepare a corrected income statement for Wyoming Corporation.