Holiday Travel Court was organized on April 1, 1997, by Alice Adare. Alice is a good manager

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Holiday Travel Court was organized on April 1, 1997, by Alice Adare. Alice is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Alice prepared the following income statement for the quarter that ended March 31, 1998:

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Alice knew 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 in the income statement, the ledger contains these selected balances at March 31, 1998:

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You then make inquiries and discover the following:
1. Rental revenues include advanced rentals for summer-month occupancy, \(\$ 28,000\).
2. There were \(\$ 1,300\) of supplies on hand at March 31 .
3. Prepaid insurance resulted from the payment of a 1-year policy on January 1, 1998.
4. The mail on April 1, 1998, 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 \(\$ 350\) per day. At March 31, 2 days' wages have been incurred but not paid.
6. The note payable is a 3-month, \(10 \%\) note dated January 1, 1998.
\section*{Instructions}

(a) Prepare a correct income statement for the quarter ended March 31, 1998.

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

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Related Book For  book-img-for-question

Financial Accounting Tools For Business Decision Making

ISBN: 9780471169192

1st Edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

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