Revenue and Expense Recognition

On December 31, 2018, Hadley Company provides the following pre-audit income statement for your review:

........... Sales........................................................................................................... $200,000

........... Cost of goods sold...................................................................................... (94,000)

........... Gross profit.............................................................................................. $ 106,000

........... Rent expense............................................................................................... (18,000)

........... Advertising expense..................................................................................... (6,000)

........... Salaries expense.......................................................................................... (32,000)

........... Other expenses........................................................................................... (15,000)

........... Income before taxes..$ 35,000

........... Income tax expense (14,000)

........... Net income................................................................................................ $ 21,000

The following information is also available:

(a) Many of Hadleys customers pay for their orders in advance. At year-end, $18,000 of orders paid for in advance of shipment have been included in the sales figure.

(b) Hadley introduced and sold several products during the year with a 30-day, money-back guarantee. During the year, customers seldom returned the products. Hadley has not included in revenue or in cost of goods sold those items sold within the last 30 days that included the guarantee. The revenue is $16,000, and the cost associated with the products is $7,500.

(c) On January 1, 2018, Hadley prepaid its building rent for 18 months. The entire amount paid, $18,000, was charged to Rent Expense.

(d) On July 1, 2018, Hadley paid $24,000 for general advertising to be completed prior to the end of 2018. Hadleys management estimates that the advertising will benefit a 2-year period and, therefore, has elected to charge the costs to the income statement at the rate of $1,000 a month.

(e) During 2018, Hadley paid salaries and wages to its employees in the amount of $32,000. While the Salaries Payable account did not have a balance at January 1, 2018, Hadley had accrued salaries of $1,400 at December 31, 2018 that had not yet been recorded.

(f) During 2018, Hadley discovered an error had been made when recording 2017s bad debts expense (included in other expenses). The expense had been understated by $900 in 2017 and the accountant corrected the error by increasing 2018s bad debts expense by $900.

Intermediate Accounting Question

Required:

Prepare a revised income statement using the information provided.