Austin Corporation was formed during 2011 by Joanna Kay. Joanna is the president and sole stockholder. At December 31, 2012, Joanna prepared an income statement for Austin Corporation. Joanna is not an accountant, but she thinks she did a reasonable job preparing the income statement by looking at the financial statements of other companies.She has asked you for advice. Joanna??s income statement appears as follows.

Joanna has also provided you with these facts.1. Included in the service revenue account is $3,000 of revenue that the company earned and received payment for in 2011. She forgot to include it in the 2011 income statement, so she put it in this year??s statement.2. Joanna operates her business out of the basement of her parents?? home. They do not charge her anything, but she thinks that if she paid rent it would cost her about $10,000 per year. Therefore, she included $10,000 of rent expense in the income statement.3. To reward herself for a year of hard work, Joanna went to Greece. She did not use company funds to pay for the trip, but she reported it as an expense on the income statement since it was her job that made her need the vacation.Instructions(a) Comment on the proper accounting treatment of the three items above.(b) Prepare a corrected income statement for AustinCorporation.

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AUSTIN CORPORATION Income Statement For the Year Ended December 31, 2012 Accounts receivable $17,000 Service revenue 47,000 Rent expense Insurance expense Vacation expense 10,000 7,000 4,000 Net income $43,000