Question

Yard Designs (YD) experienced the following events in Year 1, its first year of operation: 1. On October 1, Year 1 YD collected $54,000 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 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 Year 1 accounting period. c. Ignoring all other future events, what is the amount of service revenue that would be recognized in Year 2?

Answer 1

A.

	YARD DESIGNS
	Accounting equations Year 1
	Assets	=	Liabilities	+	Stockholders equity
Event	Cash	=	Unearned revenue	+	Retained earnings
Event	54000		54000
Adjusting			-13500		13500
	54000		40500		13500

B.

YARD DESIGNS
Income Statement
For the Year ended December 31, Year 1
Revenues	13500
Expenses	0
Net Income	13500

c.

YARD DESIGNS
Balance Sheet
As of December 31, Year 1
Assets
Cash	54000
Total assets		54000
Liabilities
Unearned revenue	40500
Total liabilities		40500
Stockholders equity
Retained earnings	13500
Total stockholders equity		13500
Total liabilities and stockholders equity		54000

d.

YARD DESIGNS
Statement of cash flows
For the Year ended December 31, Year 1
Cash flow from operating activities
Cash from customers	54000
Net cash flow from operating activities		54000
Cash flows from investing activities
Cash flows from financing activities
Net change in cash		54000
Add: Beginning cash balance		0
Ending cash balance		54000

e. Service revenue recognized = 40500