You have recently been hired as the assistant controller for Stanton Temperton
Corporation, which rents building space in major metropolitan areas. Customers
are required to pay six months of rent in advance. At the end of 2018, the
company's president, Jim Temperton, notices that net income has fallen
compared to last year. In 2017, the company reported before-tax profit of
$330,000, but in 2018 the before-tax profit is only $280,000. This concerns Jim
for two reasons. First, his year-end bonus is tied directly to before-tax profits.
Second, shareholders may see a decline in profitability as a weakness in the
company and begin to sell their stock. With the sell-off of stock, Jim's personal
investment in the company's stock, as well as his company-operated retirement
plan, will be in jeopardy of severe losses.
After close inspection of the financial statements, Jim notices that the balance of
the Deferred Revenue account is $120,000. This amount represents payments in
advance from long-term customers ($80,000) and from relatively new customers
($40,000). Jim comes to you, the company's accountant, and suggests that the
firm should recognize as revenue in 2018 the $80,000 received in advance from
