Homework SourseHappy Camper Park was organized on April 1 2016 by Barbara E
Happy Camper Park was organized on April 1, 2016, by Barbara Evans. Barbara is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Barbara prepared the following income statement for the quarter that ended March 31, 2017.
HAPPY CAMPER PARK
Income Statement
For the Quarter Ended March 31, 2014
Revenues
Rent revenue
$90,000
Operating expenses
Advertising
$5,200
Salaries and wages
29,800
Utilities
900
Depreciation
800
Maintenance and repairs
4,000
Total operating expenses
40,700
Net income
$49,300
Barbara thought that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at March 31, 2014.
Supplies $6,200
Prepaid Insurance 7,200
Notes Payable 12,000
You then make inquiries and discover the following.
1. Rent revenues include advanced rentals for summer occupancy $15,000.
2. There were $1,700 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a one-year policy on January 1, 2017.
4. The mail on April 1, 2017, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $260; and utilities, $180.
5. There are four employees, who receive wages totaling $300 per day. At March 31, 2 days salaries and wages have been incurred but not paid.
6. The note payable is a 3-month, 10% note dated January 1, 2017.
a) Prepare a correct income statement for the quarter ended March 31, 2017.
b) Explain to Barbara the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.
Happy Camper Park was organized on April 1, 2016, by Barbara Evans. Barbara is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Barbara prepared the following income statement for the quarter that ended March 31, 2017.
HAPPY CAMPER PARK
Income Statement
For the Quarter Ended March 31, 2014
Revenues
Rent revenue
$90,000
Operating expenses
Advertising
$5,200
Salaries and wages
29,800
Utilities
900
Depreciation
800
Maintenance and repairs
4,000
Total operating expenses
40,700
Net income
$49,300
Barbara thought that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at March 31, 2014.
Supplies $6,200
Prepaid Insurance 7,200
Notes Payable 12,000
You then make inquiries and discover the following.
1. Rent revenues include advanced rentals for summer occupancy $15,000.
2. There were $1,700 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a one-year policy on January 1, 2017.
4. The mail on April 1, 2017, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $260; and utilities, $180.
5. There are four employees, who receive wages totaling $300 per day. At March 31, 2 days salaries and wages have been incurred but not paid.
6. The note payable is a 3-month, 10% note dated January 1, 2017.
a) Prepare a correct income statement for the quarter ended March 31, 2017.
b) Explain to Barbara the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.
Happy Camper Park was organized on April 1, 2016, by Barbara Evans. Barbara is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Barbara prepared the following income statement for the quarter that ended March 31, 2017.
HAPPY CAMPER PARK
Income Statement
For the Quarter Ended March 31, 2014
Revenues
Rent revenue
$90,000
Operating expenses
Advertising
$5,200
Salaries and wages
29,800
Utilities
900
Depreciation
800
Maintenance and repairs
4,000
Total operating expenses
40,700
Net income
$49,300
Barbara thought that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at March 31, 2014.
Supplies $6,200
Prepaid Insurance 7,200
Notes Payable 12,000
You then make inquiries and discover the following.
1. Rent revenues include advanced rentals for summer occupancy $15,000.
2. There were $1,700 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a one-year policy on January 1, 2017.
4. The mail on April 1, 2017, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $260; and utilities, $180.
5. There are four employees, who receive wages totaling $300 per day. At March 31, 2 days salaries and wages have been incurred but not paid.
6. The note payable is a 3-month, 10% note dated January 1, 2017.
a) Prepare a correct income statement for the quarter ended March 31, 2017.
b) Explain to Barbara the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.
Solution
a)
b) Barbara is not recognizing the Accrual accounting principle according to which the period\'s revenues should be matched with the period\'s expenses. All the revenues belongs to the future but received in present period, should be reduced from the present revenues. Likewise, all expenses which are paid in future but belongs to present period should be included in expenses to come out with perfect accrual based accounting.
| Income Statement (revised): | |||
| Previous amount | Adjustments | Revised Amounts | |
| Revenue | 90000 | less advance rental $15000 | 75000 |
| Less: Operating Exp.: | |||
| Advertising | 5200 | add: Bills payable 110 | 5310 |
| Salaries and wages | 29800 | add: wages payable 600 | 30400 |
| Utilities | 900 | add: Bills payable 180 | 1080 |
| Depre | 800 | 800 | |
| Maintenance and repairs | 4000 | add: Bills payable 260 | 4260 |
| supplies exp | 0 | 6200-1700 | 4500 |
| Insurance | 0 | 7200*2/12 | 1200 |
| Interest exp | 0 | 12000*10%*2/3 | 800 |
| Total Operating expenses: | 40700 | 48350 | |
| Net Income | 49300 | 26650 |
