Question

Yard Designs (YD) experienced the following events in 2018, its first year of operation:

1. On October 1, 2018, YD collected $40,800 for consulting services it agreed to provide during the next 12 months.
2. Adjusted the accounts to reflect the amount of consulting service revenue recognized in 2018.
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 2018 accounting period.
c. Ignoring all other future events, what is the amount of service revenue that would be recognized in 2019?

Answer 1

a)

assets = liabilities + equity

cash deferred revenue retained earnings

1) $40,800 $40,800

2) $0 -$,6800 $6,800

$40,800 $34,000 $6,800

revenues - expenses = net income cash flows

1) $0 $0 $0 $40,800 OA

2) $6,800 $0 $6,800 $0 OA

$6,800 $0 $6,800 $40,800 NC

b) Yard Designs

Income Statement

For the year ended December 31, 2018

Revenues $6,800

Expenses $0

Net income $,6800

Yard Designs

Balance Sheet

For the year ended December 31, 2018

Assets:

Cash $40,800

Total assets $40,800

Liabilities:

Deferred revenue $34,000

Equity:

Retained earnings $6,800

Total liabilities and equity $40,800

Yard Designs

Statement of Cash Flows

For the year ended December 31, 2018

Cash flows from operating activities:

Net income $6,800

Adjustments to net income:

• Increase in deferred revenue $34,000

Net cash flow from operating act. $40,800

Cash flows from investing activities: $0

Cash flows from financing activities: $0

Net increase in cash $40,800

Initial cash balance $0

Ending cash balance $40,800

c) $34,000