Answer:
Abbey Park
a) Correct Income Statement for the quarter ended March 31, 2017:
Abbey Park
Income statement
For the quarter ended March 31,2017
Revenue
Rent Revenue $62,000
Operating expenses
Advertising expense 4,310
Salaries and wages expense 28,470
Utilities expense 1,740
Depreciation expense 800
Maintenance expense 3,840
Supplies Expense 3,900
Insurance expense 1,800
Interest expense 350
Total operating expense 45,210
Net income $16,790
b) The generally accepted accounting principles that Trudy did not follow in the preparation of her income statement are the accrual concept and the matching principle. Failure to follow these principles means that the net income will be misstated. The accounts were based on the cash basis instead of the accrual basis of generally accepted accounting principles. This means that records for non-cash transactions were not recognized while some others were recognized based on their cash effects.
Explanation:
a) Income Statement for the quarter ended March 31, 2017:
Abbey Park
Income statement
For the quarter ended March 31,2017
Revenue
Rent Revenue $83,000
Operating expenses
Advertising expense 4,200
Salaries and wages expense 27,600
Utilities expense 1,500
Depreciation expense 800
Maintenance expense 2,800
Total operating expense 36,900
Net income $46,100
Adjustments:
1. Rent Revenue = $62,000 ($83,000 - 21,000)
2. Supplies Expenses $3,900 ($4,500 - 600)
Supplies balance = 600
3. Prepaid Insurance = $5,400 ($7,200 - 1,800)
Insurance expense = $1,800 ($7,200/4)
4. Advertising Expense = $4,310 ($4,200 + 110)
Maintenance Expense = $3,840 ($2,800 + 1,040)
Utilities Expense = $1,740 ($1,500 + 240)
Expenses Payable = $1,390
5. Wages Expenses = $28,470 (27,600 + ($290 * 3))
Wages payable $870
6. Interest Expense = $350 ($20,000 * 7% * 3/12)
