Lakewood Tennis Club (LTC) operates an indoor tennis facility. The company charges a $ 150 annual membership fee plus a member rental rate of $ 20 per court per hour. LTC’s fiscal year end is August 31. LTC’s revenue recognition policy is described in its financial statement notes as follows:
Revenue Recognition — LTC earns revenue from two sources. Annual membership fees are earned by providing 12 months of services to members, so they are reported as membership revenue as they are earned over that 12- month period. Court rental fees are earned by renting courts each day, so they are reported as service revenue as courts are used by members.
On August 31, 10 new members joined and paid the annual membership fee in cash. The memberships do not begin until September 1. For the week ended September 11, LTC provided 190 court- hours of rental services for members and collected its fees in cash. On September 13, LTC purchased and received tennis balls and other supplies. The regular retail price was $ 220, but LTC negotiated a lower amount ($ 200) that is to be paid in October. On September 15, LTC paid $ 1,500 to employees for the hours they worked from September 1– 15. For the two weeks ended September 25, LTC provided 360 court- hours for members and collected its fees in cash. On September 26, LTC’s courts were used for a member’s birthday party. LTC expects the member to pay the special event booking fee of $ 210 on Saturday, October 2. On September 27, LTC wrote a $ 300 check to an advertising company to prepare advertising flyers that will be inserted in local newspapers on October 1. On September 29, LTC received $ 210 on account for the member’s birthday party that was held on September 26. On September 30, LTC submitted its electricity and natural gas meter readings online. According to the suppliers’ websites, the total charges for the month will be $ 300. This amount will be paid on October 17 through a preauthorized online payment.
Required:
1. Indicate the accounting equation effects of the August and September events, using a table similar to the one shown for Demonstration Case B on page 116. Reference each transaction by date.
2. Prepare journal entries to record the August and September events described above. Reference each transaction by date.
3. Using your answer to requirement 1 or 2, calculate LTC’s preliminary net income for September. Is LTC profitable, based on its preliminary net income?
4. Identify at least two adjustments that LTC will be required to make before it can prepare a final income statement for September.