Happy Camper Park was organized on April 1, 2016, by Erica Hatt. Erica is a good manager

Question:

Happy Camper Park was organized on April 1, 2016, by Erica Hatt. Erica is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Erica prepared the following income statement for the quarter that ended March 31, 2017.

Erica 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, 2017.

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.

Instructions

With the class divided into groups, answer the following.

(a) Prepare a correct income statement for the quarter ended March 31, 2017.

(b) Explain to Erica the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.