Holiday Travel Court
Income Statement
For the quarter ended March 31, 2016
Revenues:
Travel Court rental fees $ 95,000
Operating Expenses:
Advertising $ 5,200
Wages 29,800
Utilities 900
Depreciation 800
Repairs 4,000
Total operating expenses 40,700
Net Income 54,300
Alice knew that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she 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 March 31, 2016:
Supplies $ 5,200
Prepaid Insurance 7,200
Notes Payable 12,000
You then make inquires and discover the following:
a. Travel court rental fees include advanced rentals for the summer month occupancy of $28,000.
b. There was $1,300 of supplieson hand at March 31.
c. Prepaid insurance resulted from the payment of a one year policy on January 1, 2016.
d. The mail on April 1, 2016 brought the following bills: advertising for week of March 24 of $110, repairs made on March 10 for $260, and utilities of $180.
e. There are four employees who receive total wages of $350 each day. At March 31, 2 days of wages have been incurred but not paid.
f. The note payable is a 3 month, 10% note, dated February 1, 2016.
Instructions:
a. Prepare a correct income statement for the quarter ended March 31, 2016. (Show details of your calculations!)
b. Explain in detail to Alice the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.