Alma Zorditch started an Internet company and has computed the first years profit as shown below. She is distressed. She thought the business had been going fairly well but does not know how she can live on the meager profit the company has earned. She is considering going out of business. Alma doesnt have any formal training in accounting but once took a 4-hour seminar on the subject. That seminar impressed on her the importance of keeping detailed and accurate records. All the numbers reported below are accurate, but there may be other problems that you can identify.

Zorditch.com Profits I Made the First Year

Revenues: Cash collected from customers $173,400 Accounts receivable at year end 18,200 Total revenues $191,600 Expenses: Money I contributed to start the firm $ 15,000 Purchase of office furnishings & equipment 28,500 Purchase of office supplies 1,560 Rent on the office space 13,000 Loan from the bank 50,000 Wages paid to employees 36,200 Advertising and promotion 24,280 Miscellaneous 11,300 Total expenses 179,840 Profit $ 11,760 After talking with Alma, you discover the following additional information. 1. When purchased, the office furnishings and equipment have an expected useful life of 5 years. That estimate still appears reasonable. 2. All office supplies have been used up. 3. The rent amount includes $1,000 rent paid in advance for the first month of Year 2. 4. Half of the advertising and promotion amount is for a campaign that will begin 3 months from now.

Required: 1. Study the information given and prepare a new Income Statement making all changes you believe are appropriate.

[3 marks]

2. Prepare a classified Balance Sheet.