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:

	Year 1	Year 2	Year 3
Sales	$354,000	$89,100	$89,100
Equipment*	$106,000	$0	$0
Salaries and wages	50,330	50,330	50,330
Advertising	5,420	5,420	5,420
Rent and utilities	32,350	32,350	32,350
Net income (loss)	$159,900	$1,000	$1,000

*Equipment was purchased at the beginning of year 1 for $106,000 and is expected to last for three years and then to be worth $1,060.

Required:

Convert the income statements for each of the three years to the accrual basis. Indicate a net loss with a minus sign.

Year 1

Year 2

Year 3

Sales
Expenses:
Depreciation
Salaries and wages
Advertising
Rent and utilities
Total expenses
Net income (loss)