Exercise 4-21 Revenue Recognition, Cash and Accrual Basis Hathaway Health Club sold three-year memberships at a reduced rate during its open- ing promotion. It sold 1,000 three-year nonrefundable memberships for $366 each. The club expects to sell 100 additional three-year memberships for $900 each over each of the next two years. Membership fees are paid when clients sign up. The club's book- keeper has prepared the following income statement for the fi rst year of business and projected income statements for Years 2 and 3. Cash-basis income statements: Year 1. Year 2. Year 3 Sales. 366000. 90000. 90000 Equipment. 100000. 0. 0 Salaries and wages. 50000. 50000. 50000 Advertising. 5000. 5000. 5000 Rent and utilities. 36000. 36000. 36000 Net income (loss). 175000. (1000). (1000) *Equipment was purchased at the beginning of Year 1 for $100,000 and is expected to last for three years and then to be worth $1,000. Required 1. Convert the income statements for each of the three years to the accrual basis. 2. Describe how the revenue recognition principle applies. Do you believe that the cash-basis or the accrual-basis income statements are more useful to management? to investors? Why