Reference no: EM131809433

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.