Lincoln Park was organized on April 1, 2013, by Judy Tercek. Judy is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Judy prepared the following income statement for the quarter that ended March 31, 2014.

Judy knew that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the trial balance. In addition to the account balances reported in the income statement, the ledger contains these selected balances at March 31, 2014.
Supplies.............$ 4,500
Prepaid Insurance............7,200
Notes Payable............20,000
You then make inquiries and discover the following.
1. Rent revenue includes advanced rentals for summer-month occupancy, $21,000.
2. There were $600 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2014.
4. The mail on April 1, 2014, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $1,040; 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, 7% note dated January 1, 2014.

Instructions
With the class divided into groups, answer the following.
(a) Prepare a correct income statement for the quarter ended March 31, 2014.
(b) Explain to Judy the generally accepted accounting principles that she did not follow in preparing her income statement and their effect on herresults.

Transcribed Image Text:

LINCOLN PARK Income Statement For the Quarter Ended March 31, 2014 Revenues $83,000 Rent revenue Operating expenses Advertising expense Salaries and wages expense Utilities expense Depreciation expense Maintenance and repairs expense 4,200 27,600 1,500 800 2,800 Total operating expenses 36,900 $46,100 Net income