The Independent Book Shop Ltd. was formed on April 1, 2014. It is a small private corporation, run by Joanna Kay. On March 31, 2015, Joanna prepared the following income statement:

Joanna admits that her knowledge of accounting is somewhat limited and is concerned that her income statement might not be correct. She gives you the following additional information:
1. Included in the Service Revenue account is $3,000 of revenue that the company expects to earn in April 2015. Joanna included it in this year's statement so she wouldn't forget about it.
2. Joanna operates her business in a converted carriage house attached to her parents' downtown home. They do not charge her anything for the use of this building, but she thinks that if she paid rent it would have cost her about $12,000 a year. She included this amount in the income statement as Rent Expense because of the "opportunity cost."
3. To reward herself after a year of hard work, Joanna took a vacation to Greece. She used personal 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) Identify any corrections that should be made to the income statement and explain why.
(b) Prepare a corrected income statement.
(c) What other financial statements should the Independent Book Shop prepare, assuming it follows Accounting Standards for Private Enterprises?

Transcribed Image Text:

INDEPENDENT BOOK SHOP LTD Income Statement Year Ended March 31, 2015 Revenues $23,000 41,000 Accounts receivable Service revenue Total revenues Expenses $64,000 $12,000 5,000 4,000 Rent expense Office expense Vacation expense Total expenses Profit before income tax Income tax expense Profit 21,000 85,000 5,000 $90,000