Blossom Company was organized on April 1, 2016, by Trudy Crawford. Trudy is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Trudy prepared the following income statement for the quarter that ended March 31, 2017.

Blossom Company

Income Statement

For the Quarter Ended March 31, 2017

Revenues

Rent revenue

Operating expenses

Advertising expense

Salaries and wages expense Utilities expense

Depreciation expense Maintenance and repairs expense Total operating expenses

Net income

$82,500

$4,400 26,000 1,500 700 2,900

35,500 $47,000

Trudy 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.

1

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, 2017.

Supplies

Prepaid Insurance Notes Payable

$4,600 7,500 21,000

You then make inquiries and discover the following.

1. Rent revenue includes advanced rentals for summer-month occupancy, $21,500.
2. There were $530 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2017.
4. The mail on April 1, 2017, brought the following bills: advertising for week of March 24, $150; repairs made March 10, $1,050; and utilities $200.
5. Wage expense totals $270 per day. At March 31, 3 days' wages have been incurred but not paid.
6. The note payable is a 3-month, 8% note dated January 1, 2017.

Instructions

1. 1)Write a correct income statement for the quarter ended March 31, 2017.
2. 2)Explain to Trudy the generally accepted accounting principles that she did not follow in preparing her income statement and their effect on her results.