The condensed balance sheet as of December 31, 1996, for Van Den Boom Enterprises follows. Assets Liabilities and Stockholders’ Equity Current assets $40,000 Land 50,000 Total assets $90,000 Liabilities Stockholders’ equity Total liabilities and stockholders’ equity $35,000 55,000 $90,000 Revenues and expenses (other than amortization) are predicted to be $65,000 and $20,000, respectively, for 1997, 1998, and 1999. All revenues and expenses are received or paid in cash. On January 1, 1997, Van Den Boom pays $40,000 cash for an item. REQUIRED:

a. Assume that Van Den Boom Enterprises engaged in operating activities only during 1997, 1998, and 1999. Prepare income statements for 1997, 1998, and 1999 and the balance sheet as of December 31 for 1997, 1998, and 1999, assuming the $40,000 cash payment is treated in each of the following ways: (1) Immediately expensed. (2) Capitalized and amortized evenly over two years. (3) Capitalized and amortized evenly over three years.

b. Compute the total income recognized over the three-year period under each assumption above.

c. What is interesting about the 12/31/99 balance sheet prepared under all three assumptions?