Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 $351 each. The club expects to sell 100 additional three-year memberships for $888 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 $351,000 $88,800 $88,800 Equipment $118,000 $ $0 $0 Salaries and wages 49,700 49,700 49,700 Advertising 5,320 5,320 5,320 Rent and utilities 32,720 32.720 32.720 Net Income (loss) $145,260 $1,060 $1,060 *Equipment was purchased at the beginning of year 1 for $118,000 and is expected to last for three years and then to be worth $1,180. 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 Year 1 Year 2 Year 3 Sales $ Expenses: Depreciation Salaries and wages Advertising Rent and utilities Total expenses Net income (loss) 2. Which of the following statements is incorrect? Rent and utilities Accrual-basis income statements allow the reader to focus on the long-term profit-ability of the business. Accrual-basis income statements are more useful to the management. Under revenue recognition, revenue is recognized when cash is received. Under revenue recognition, revenue is recognized when performance obligation is satisfied
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started