Revenue Recognition, Cash and Accrual Bases

Hathaway Health Club sold three-year memberships at a reduced rate during its opening promotion. It sold 1,000 three-year nonrefundable memberships for $354 each. The club expects to sell 100 additional three-year memberships for $891 each over each of the next two years. Membership fees are paid when clients sign up. The club's bookkeeper has prepared the following income statement for the first year of business and projected income statements for Years 2 and 3.

Cash-basis income statement:

Convert the income statements for each of the three years to the accrual basis. Indicate a net loss with a minus sign. Hathaway Health Club Income Statements Year 1 Year 2 Year 3 Sales 354,000 X 89,100 X 89,100 X Expenses: Depreciation 35,970 35,970 35,970 Salaries and wages 50,960 50,960 50,960 Advertising 4,880 4,880 4,880 Rent and utilities 32,250 35,250 X 32,250 Total expenses 124,060 124,060 124,060 Net income (loss) +A 229,940 X -34,960 X -34,960 XRevenue Recognition, Cash and Accrual Bases Hathaway Health Club sold three-year memberships at a reduced rate during its opening promotion. It sold 1,000 three-year nonrefundable memberships for $354 each. The ciub expects to sell 100 additional threeyear memberships for $891 each over each of the next two years. Membership fees are paid when clients sign up. The club's bookkeeper has prepared the following income statement for the rst year of business and projected income statements for Years 2 and 3. Cas h- basis income statement: Year 1 Year 2 Year 3 Sales . $r Pr Equipment' $109,000 $0 $0 Salaries and wages 50,960 50,960 50,960 Advertising 4,880 4,880 4,880 Rent and utiiities , , , Net income (loss) $156,910 $1,010 $1,010 *Equipment was purchased at the beginning of year 1 for $109,000 and is expected to last for three years and then to be worth $1,090. Required: Convert the income statements for each of the three years to the accrual basis. Indicate a net loss with a minus sign. Hathaway Health Club Income Statements