Question

Healing Hands Massage Hut offers high-end, specialized massages and grooming services, including manicures, pedicures, facials, and full-body massages. Healing Hands is a new startup service organization that generates monthly sales of $200,000. As a startup organization, Healing Hands spends $5,000 a month on advertising in local newspapers and on social media sites. In addition, each month Healing Hands spends $100,000 to pay its team of highly specialized massage therapists, and $10,000 to a technology company (to handle the company’s website, massage appointment scheduling activities, and customer communications). Further, the company incurs a $15,000 monthly expense to rent its hut space in a hip new retail market. Finally, Healing Hands incurs $20,000 of monthly administrative expenses.

Required:

1. Prepare an income statement for Healing Hands for the past month. Enter all amounts as positive numbers.

Healing Hands Massage Hut
Income Statement
For the Past Month
		$
Less operating expenses:
	$
		$

2. Healing Hands’ income statement has no line item for cost of goods sold. Which of the following statement is correct.

Answer 1

HEALING HANDS MASSAGE HUT
Income Statement
For the Past Month
Revenues		$200,000
Less: Operating Expenses
Salary Expense	$100,000
Rent Expense	$15,000
Technology Expenses	$10,000
Advertisement Expense	$5,000
Administrative Expenses	$20,000
		$150,000
Net Income		$50,000
2.
Healing Heads Massage Hut provides services in the nature of high end specialized
massages and grooming services.The nature of business is provision of services and
no sale of goods or merchandise is done.
The income statement of service providers includes only expenses incurred in earning
the service revenue.Cost of sales would only appear if the business activity includes
sale of goods or merchandise.