Question

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

1. On October 1, 2018, YD collected $20,400 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

1. Record the events under an accounting equation.
2. Prepare an income statement, balance sheet, and statement of cash flows for the 2018 accounting period.
3. Ignoring all other future events, what is the amount of service revenue that would be recognized in 2019?

Answer 1

accounting equation

Year Designs 2018
event	assets ($)	=	liabilities ($) +	stockholders equity ($)
	cash		unearned revenue	revenue
received 12 months rent	20400		20400	0
earned 3 months rent (adjusted revenue)			-5100	5100
balance	20400		15300	5100

adjusted revenue	amount ($)
(advance received * no.of months completed)/12
advance received	20400
no.of month completed	3
adjusted revenue	5100

Yard Designs
Income statement for the year ended Dec 31, 2018
particulars	amount ($)
revenue	5100
less:expenses	0
net income	5100

Yard Designs
Balance Sheet as of Dec 31, 2018
liabilities	amount ($)	assets	amount ($)
unearned revenue	15300	cash	20400
stockholders equity:
retained earnings	5100
total liabilities and stockholders equity	20400	total assets	20400

Yard Designs
cash flow statement for year 2018
cash flow from operating activities:		amount ($)
net income	5100
unearned revenue	15300
net cash flow from operating activities		20400
net cash flow from investing activities		0
net cash flow from financing activities		0
net change in cash and cash equivalent		20400
cash and cash equivalent at the beginning		0
cash and cash equivalent at the end		20400

Revenue for 2019 would be

adjusted revenue	amount ($)
(advance received * no.of months completed)/12
advance received	20400
no.of month completed	3
adjusted revenue	5100
revenue for 2019 (advance - adjusted revenue)	15300