REVENUE RECOGNITION AND MATCHING Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carrico’s activities during 2009.

a. At the beginning of 2009, customers owed Carrico $43,700 for advertising services performed during 2008. During 2009, Carrico performed an additional $692,400 of advertising services on account. Carrico collected $708,700 cash from customers during 2009.

b. At the beginning of 2009, Carrico had $15,000 of supplies on hand for which it owed suppliers $8,150. During 2009, Carrico purchased an additional $12,000 of supplies on credit. Carrico also paid $19,300 cash owed to suppliers for goods previously purchased on credit. Carrico had $2,800 of supplies on hand at the end of 2009.

c. Carrico’s 2009 operating and interest expenses were $428,000 and $137,000, respectively.

Required:

. Calculate Carrico’s 2009 income before taxes.

. Calculate the amount of Carrico’s accounts receivable, supplies, and accounts payable at December 31, 2009. Explain the underlying principles behind why these three accounts exist.

Exercise