Text-of-the-Quarter, Inc. (TQI) is a new retailer of accounting texts. Sales are made via contracts that provide for TQI to send the customer an accounting text each quarter for twelve quarters. The selling price of each text is $15, with payment due within 30 days of delivery. Sales can be accurately estimated because of the contracts.

The number of contracts TQI sold in its first four quarters of existence, along with the number of texts purchased by TQI, were as follows:

Texts Remaining from Contracts Text Each Quarter's Purchase Quarter Sold Purchased at End of First Year First 10,000 50,000 0 Second 20,000 40,000 0 Third 30,000 50,000 10,000 Fourth 40,000 120,000 50,000 All deliveries start in the quarter of contract sale, and all deliveries are up-to-date.

Texts were purchased from the publisher at an average cost of $9 for the first quarter, $10 for the second and third quarters, and $11 for the fourth quarter. Selling and administrative costs for the year were $270,000. TQI’s tax rate is 40%.

Required Using generally accepted accounting principles for revenue and expense recognition and inventory accounting, prepare an income statement in such a way as to minimize the company’s taxes.

CFA Adapted