Question

Part 1. Happy Trails Park was organized on April 1, 2019, by Alicia Hency. Alicia is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper. Alicia prepared the following income statement for the quarter that ended March 31, 2020. Harpy Trails Park Income Statement For the Quarter Ended March 31, 2020 Revenues Rent revenue £88,000 Operating expenses Advertising £ 5,200 Salaries and wages 28,800 Utilities 750 Depreciation 800 Maintenance and repairs 4,000 Total operating expenses 39,550 Net income £48,450

Answer 1

Please find below the required answer for above given questions:

1.1.

In the books of Happy Trails Park
Adjusting Journal Entries for the month ended March 31, 2020
Transaction No.	Date	Account Titles	Debit	Credit
1	March 31	Rent Revenue	£14,000
		Unearned Rent Revenue		£14,000
		[Being rent revenue includes advance rentals for summer occupancy rectified]
2	March 31	Supplies Expense	£4,750
		Supplies		£4,750
		[Being supplies used during March 2020]
3	March 31	Insurance Expense	£1,875
		Prepaid Insurance		£1,875
		[Being 3 months insurance expired for quarter ended March 31, 2020 since prepaid insurance was for 1 year taken on January 1, 2020]
4	March 31	Advertising	£13
		Maintenance and Repairs	£260
		Utilities	£120
		Accounts Payable		£393
		[Being various expenses bills received but not paid as on March 31, 2020]
5	March 31	Salaries and Wages	£600
		Salaries and Wages Payable		£600
		[Being 4 employees 2 days salaries @ 300 per day accrued but not paid as on March 31, 2020]
6	March 31	Interest Expense	£300
		Interest Payable		£300
		[Being 3 months i.e. Jan. 2020 to Mar. 2020 interest accrued at 10% p.a. on notes payable of 12,000 which is maturing on April 1, 2020]

Ledger Entries for the month ended March 31, 2020
Rent Revenue
Unearned Rent Revenue	£14,000	Opening Balance c/d	£88,000
Closing Balance c/f	£74,000
	£88,000		£88,000
Unearned Rent Revenue
Closing Balance c/f	£14,000	Rent Revenue	£14,000
	£14,000		£14,000
Supplies Expense
Supplies	£4,750	Closing Balance c/f	£4,750
	£4,750		£4,750
Supplies
Opening Balance c/d	£6,200	Supplies Expense	£4,750
		Closing Balance c/f	£1,450
	£6,200		£6,200
Insurance Expense
Prepaid Insurance	£1,875	Closing Balance c/f	£1,875
	£1,875		£1,875
Prepaid Insurance
Opening Balance c/d	£7,500	Insurance Expense	£1,875
		Closing Balance c/f	£5,625
	£7,500		£7,500
Advertising
Opening Balance c/d	£5,200	Closing Balance c/f	£5,213
Accounts Payable	£13
	£5,213		£5,213
Maintenance and Repairs
Opening Balance c/d	£4,000	Closing Balance c/f	£4,260
Accounts Payable	£260
	£4,260		£4,260
Utilities
Opening Balance c/d	£750	Closing Balance c/f	£870
Accounts Payable	£120
	£870		£870
Accounts Payable
Closing Balance c/f	£393	Advertising	£13
		Maintenance and Repairs	£260
		Utilities	£120
	£393		£393
Salaries and Wages
Opening Balance c/d	£28,800	Closing Balance c/f	£29,400
Salaries and Wages Payable	£600
	£29,400		£29,400
Salaries and Wages Payable
Closing Balance c/f	£600	Salaries and Wages	£600
	£600		£600
Interest Expense
Interest Payable	£300	Closing Balance c/f	£300
	£300		£300
Interest Payable
Closing Balance c/f	£300	Interest Expense	£300
	£300		£300

Adjusted Trial Balanace as on March 31, 2020
Account Titles	Debit	Credit
Cash	£46,750
Rent Revenue		£74,000
Unearned Rent Revenue		£14,000
Supplies Expense	£4,750
Supplies	£1,450
Insurance Expense	£1,875
Prepaid Insurance	£5,625
Advertising	£5,213
Maintenance and Repairs	£4,260
Utilities	£870
Accounts Payable		£393
Salaries and Wages	£29,400
Salaries and Wages Payable		£600
Interest Expense	£300
Interest Payable		£300
Depreciation	£800
Notes Payable		£12,000
Total	£101,293	£101,293

Corrected / Revised Income Statement for the quarter ended March 31, 2020
Revenues:
Rent Revenue		£74,000
Gross Revenue		£74,000
Operating Expenses:
Supplies Expense	£4,750
Insurance Expense	£1,875
Advertising	£5,213
Maintenance and Repairs	£4,260
Utilities	£870
Salaries and Wages	£29,400
Depreciation	£800
Total Operating Expenses		£47,168
Income from Operations		£26,832
Non-Operating Expenses:
Interest Expense		£300
Net Income		£26,532

1.2.

Explanation of IFRS to Alicia on preparation of incorrect income statement:

Hi Alicia,

IFRS is the International Financial Reporting Standards which are issued by the International Accounting Standards Board (IASB) and common rules of same is that companiy's financial statements can be consistent, transparent and comparable around the world. It specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact. They were established to create a common accounting language, so that businesses and their financial statements can be consistent and reliable from company to company and country to country.

On the other hand, due to wrong preparation of income statement by you there will be an impact on your financial results as well since you will have to pay more corporate taxes on your company's net income / profit due to short-reporting of company expenses in your income statement.