Question

Yard Designs (YD) experienced the following events in Year 1, its first year of operation: 1. On October 1, Year 1, YD collected $22,800 for consulting services it agreed to provide during the coming year. 2. Adjusted the accounts to reflect the amount of consulting service revenue recognized in Year 1. Required Based on this information alone: a. Record the events under an accounting equation. b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period. c. Ignoring all other future events, what is the amount of service revenue that would be recognized in Year 2?

Answer 1

Answer(a) YARD DESIGNS Accounting Equation for the Year 1 + Stockholder's Equity Retained Earnings Assets Cash $22,800 Event Event adj. + Liabilities Unearned Revenue $22,800 (5,700) $17,100 + + 5,700 $5,700 $22,800 = + Answer(b) YARD DESIGNS Income Statement For the Year Ended December 31, Year 1 Revenue $5,700 Expenses 0 Net Income $5,700 YARD DESIGNS Balance Sheet as at December 31, Year 1 Assets Cash $22,800 Total Assets $22,800 Liabilities Unearned Revenue $17,100 Total Liabilities $17,100 Stockholder's Equity Retained Earnings $5,700 Total Stockholder's Equity $5,700 Total Liabilities and Stockholder's Equity $22,800

YARD DESIGNS Statement of Cash Flow For the Year Ended December 31, Year 1 Cash Flow from Operating Activities Cash Receipt from Revenue $22,800 Net Cash Flow from Operating Activities $22,800 Cash Flow from Investing Activities Cash Flow from Financing Activities Net Change in Cash $22,800 Beginning Cash Balance $0 Ending Cash Balance $22,800 Answer(c) Service Revenue to be recognized in Year 2 $22,800 * 9/12 $17,100