Decision Making Across the Organization
BYP4-6. Swiss Valley Park was organized on April 1, 2006, by Erika Barnes. Erika is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Erika prepared the income statement shown at the top of page 213 for the quarter that ended March 31, 2007.
SWISS VALLEY PARK
Income Statement
For the Quarter Ended March 31, 2007
Revenues
Rental revenues $89,000
Operating expenses
Advertising $ 4,200
Wages 27,600
Utilities 900
Depreciation 800
Repairs 2,800
Total operating expenses 36,300
Net income $52,700
Erika 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 in the income statement, the ledger contains these selected balances at March 31, 2007.
Supplies $ 5,200
Prepaid Insurance 7,200
Notes Payable 14,000
You then make inquiries and discover the following.
1.
Rental revenues include advanced rentals for summer-month occupancy, $26,000.
2.
There were $1,300 of supplies on hand at March 31.
3.
Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2007.
4.
The mail on April 1, 2007, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $380; and utilities $240.
5.
There are four employees who receive wages totaling $290 per day. At March 31, 3 days' wages have been incurred but not paid.
6.
The note payable is a 3-month, 8% note dated January 1, 2007.
Instructions
With the class divided into groups, answer the following.
a.
Prepare a correct income statement for the quarter ended March 31, 2007.
b.
Explain to Erika the generally accepted accounting principles that she did not follow in preparing her income statement and their effect on her results.
2007-08-08
08:47:19
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