A stromech Travel Court was organized on July 1, 2013, by Jessica Browning.

Jessica is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Jessica prepared the following income statement for her fourth quarter, which ended June 30, 2014.

ASTROMECH TRAVEL COURT Income Statement For the Quarter Ended June 30, 2014 Revenues Rent revenue $212,000 Operating expenses Advertising expense $ 3,800 Salaries and wages expense 80,500 Utilities expense 900 Depreciation expense 2,700 Maintenance and repairs expense 4,300 Total operating expenses 92,200 Net income $119,800 Jessica suspected that something was wrong with the statement because net income had never exceeded $30,000 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 trial balance contains the following additional selected balances at June 30, 2014.

Supplies $ 8,200 Prepaid Insurance 14,400 Notes Payable 14,000 You then make inquiries and discover the following.

1 Travel court rental revenues include advanced rental payments received for summer occupancy, in the amount of $57,000.

2 There were $1,800 of supplies on hand at June 30.

3 Prepaid insurance resulted from the payment of a one-year policy on April 1, 2014.

4 The mail in July 2014 brought the following bills: advertising for the week of June 24,

$110; repairs made June 18, $4,450; and utilities for the month of June, $215.

5 There are three employees who receive wages that total $300 per day. At June 30, four days’ wages have been incurred but not paid.

6 The note payable is a 6% note dated May 1, 2014, and due on July 31, 2014.
7 Income tax of $13,400 for the quarter is due in July but has not yet been recorded.
Instructions

(a) Prepare any adjusting journal entries required at June 30, 2014.

(b) Prepare a correct income statement for the quarter ended June 30, 2014.

(c) Explain to Jessica the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.AppendixLO1