Abbey Park was organized on April 1, 2021, by Trudy Crawford. Trudy is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Trudy prepared the following income statement for the quarter that ended March 31, 2022. 

Trudy 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 fi rst 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, 2022 

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, 2022. 

4. The mail on April 1, 2022, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $1,040; and utilities $240. 

5. Wage expense totals $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, 2022. 

Instructions 

With the class divided into groups, answer the following. 

a. Prepare a correct income statement for the quarter ended March 31, 2022. 

b. Explain to Trudy the generally accepted accounting principles that she did not follow in preparing her income statement and their eff ect on her results.

Transcribed Image Text:

Abbey Park Income Statement For the Quarter Ended March 31, 2022 Revenues Rent revenue $83,000 Operating expenses Advertising expense Salaries and wages expense Utilities expense Depreciation expense Maintenance and repairs expense Total operating expenses $ 4,200 27,600 1,500 800 2,800 36,900 Net income $46,100