Effect of unearned revenue on financial statements
Michael Stone started a personal financial planning business when he accepted $120,000 cash as advance payment for managing the financial assets of a large estate. Stone agreed to manage the estate for a one-year period, beginning April 1, 2012.
a. Show the effects of the advance payment and revenue recognition on the 2012 financial statements using a horizontal statements model like the following one. In the Cash Flows column, use OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA if the account is not affected.
b. How much revenue would Stone recognize on the 2013 income statement?
c. What is the amount of cash flow from operating activities in 2013?