Question

Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2018 income statement, WME reported $695,000 for service revenue from membership fees. WME received $681,000 cash in advance from members during 2018. In its reconciliation schedule, WME should: Multiple Choice Show a $14,000 negative adjustment to net income under the indirect method for the increase in deferred revenue.

Answer 1

Answer:

Show a $14,000 negative adjustment to net income under the indirect method for the decrease in deferred revenue

Explanation:

Data provided in the question

Service revenue reported = $695,000

Cash received in advance from members = $681,000

By considering the above information we can concluded that

= Service revenue reported - cash received in advance from members

= $695,000 - $681,000

= $14,000

This $14,000 represent the negative adjustment in the net income as per the indirect method which results into decrease in deferred revenue