Happy Trails Park was organized on April 1, 2019, by Alicia Henry. Alicia is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Alicia prepared the following income statement for the quarter that ended March 31, 2020.

Alicia thought 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, 2020.

Supplies .........................................£ 6,200
Prepaid Insurance ...........................7,500
Notes Payable ................................12,000

You then make inquiries and discover the following.
1. Rent revenue includes advanced rentals for summer occupancy £14,000.
2. There were £1,450 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2020.
4. The mail on April 1, 2020, brought the following bills: advertising for week of March 24, £130; repairs made March 10, £260; and utilities, £120.
5. There are four employees, who receive wages totaling £300 per day. At March 31, 2 days’ salaries and wages have been incurred but not paid.
6. The note payable is a 3-month, 10% note dated January 1, 2020.

Instructions
With the class divided into groups, answer the following.
a. Prepare a correct income statement for the quarter ended March 31, 2020.
b. Explain to Alicia the IFRSs that she did not recognize in preparing her income statement and their effect on her results.

Transcribed Image Text:

Happy Trails Park Income Statement For the Quarter Ended March 31, 2020 Revenues £88,000 Rent revenue Operating expenses Advertising Salaries and wages £ 5,200 28,800 Utilities 750 Depreciation Maintenance and repairs 800 4,000 Total operating expenses 39,550 Net income £48,450