Question

Yard Designs (YD) experienced the following events in Year 1, its first year of operation:

a. On October 1, Year 1, YD collected $26,400 for consulting services it agreed to provide during the next 12 months.
b. 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 2016 accounting period.
c. Ignoring all other future events, what is the amount of service revenue that would be recognized in 2017?

Answer 1

a)

Assets Liabilities Equity Revenue Expenses Net income

26,400 26,400 0 0 0 0

6,600 -6,600 6,000 6,600 0 6,600

b) income statement

Revenues $6,600

Expenses $0

Net income $6,600

balance sheet

Assets

Cash $26,400

Total assets $26,400

Liabilities

Deferred revenue $19,800

Total liabilities $19,800

Equity

Retained earnings $6,600

Total equity $6,600

Total liabilities + equity $26,400

Statement of cash flows

Cash flows from operating activities:

Net income $6,600

Adjustments to net income

Increase in liabilities $19,800

Total cash flows from operating activities $26,400

Cash flows from investing activities $0

Cash flows from financing activities $0

Net increase in cash $26,400

Initial cash balance $0

Ending cash balance $26,400

c) revenue recognized during year 2 = $19,800