Xiaomi was organized on May 1, 2020, by John Brown. John is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, John prepared the following income statement for her fourth quarter, which ended April 30, 2020.

Xiaomi Income Statement For the Quarter Ended April 30, 2020

John suspected that something was wrong with the statement because net income had never exceeded $40,000 in any one quarter. Knowing that you are an experienced accountant, he asks you to review the income statement and other data.

You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at April 30, 2020.

You then make inquiries and discover the following.

1.Service revenue includes advance payments received for summer classes, in the amount of $70,000.

2.There were $2,600 of supplies on hand at April 30.

3.Prepaid insurance resulted from the payment of a one-year policy on February 1, 2020.

4.The mail in May 2020 brought the following bills: advertising for the week of April 24, $80; repairs made April 18, $2,560; and utilities for the month of April, $290.

5.There are six employees who receive wages that total $1,380 per day. At April 30, three days' wages have been incurred but not paid.

6.The note payable is a 8% note dated February 1, 2020, and due on May 31, 2020.

7.Income tax of $15,200 for the quarter is due in May but has not yet been recorded.

Instructions

A. adjusting journal entries required as at April 30, 2020.

B. correct income statement for the quarter ended April 30, 2020.

C. Explain to John the generally accepted accounting principles that he did not recognize in preparing his income statement and their effect on his results.