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Revenue Recognition, Cash and Accrual Basis Hathaway
Health Club sold three-year memberships at a reduced rate during its opening promotion. It sold 1,000 three-year nonrefundable memberships for $366 each. The club expects to sell 100 additional three-year memberships for $900 each over each of the next two years. Membership fees are paid when clients sign up. The club's book- keeper has prepared the following income statement for the fi rst year of business and projected income statements for Years 2 and 3.
Cash-basis income statements: Year 1. Year 2. Year 3
Sales. 366000. 90000. 90000Equipment. 100000. 0. 0Salaries and wages. 50000. 50000. 50000Advertising. 5000. 5000. 5000Rent and utilities. 36000. 36000. 36000Net income (loss). 175000. (1000). (1000)
Equipment was purchased at the beginning of Year 1 for $100,000 and is expected to last for three years and then to be worth $1,000.
Required
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