Question

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

1. On October 1, Year 1, YD collected $40,800 for consulting services it agreed to provide during the coming year.
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?

Record the events under an accounting equation. (Do not round intermediate calculations. Enter any decreases to account balances with a minus sign.) YARD DESIGNS Accounting Equations for the Year 1 Assets Liabilities + Stockholders' Equity Retained Earnings Event CashUnearned Revenue |=| Event Adj

Answer 1

a.
Event	Assets	=	Liabilities	+	S/E
	Cash	=	Unearned revenue	+	Retained earnings
event	40800	=	40800	+
Adj		=	-10200	+	10200
	40800	=	30600	+	10200
40800*3/12=10200
b)
Yard Designs Income Statement
For the Year Ended December 31, 2018
Revenue	10200
Expense	0
Net Income	10200
c)
Yard Designs Balance Sheet
As of December 31, 2018
Assets
Cash	40800
Total Assets	40800
Liabilities
Unearned Revenue	30600
Total Liabilities	30600
Stockholders’ Equity
Retained Earnings	10200
Total Stockholders’ Equity	10200
Total Liab. and Stockholders’ Equity	40800
d)
Yard Designs Statement of Cash Flows
For the Year Ended December 31, 2018
Cash Flows From Operating Activities:
Cash Receipt from Revenue	40800
Net Cash Flow from Operating Activities	40800
Cash Flows From Investing Activities -
Cash Flows From Financing Activities:
Net Change in Cash	40800
Plus: Beginning Cash Balance	0
Ending Cash Balance	40800
Ques c
Nine months of unearned revenue from 2018 will be recognized in 2019: $40,500 x 9/12 = $30,600