Use the following information to answer the questions below. The balances listed

Question

Use the following information to answer the questions below. The balances listed below were taken from the ABC Inc.’s unadjusted trial balance on January 31st. The company’s reporting period began on January 1st . Accounts Receivable $23,000 Accumulated Depreciation 27,000 Accounts Payable 40,000 Cash 22,000 Common Stock 50,000 Equipment 72,000 Land 2,000 Long-term investment 55,000 Prepaid Rent 18,000 Retained Earnings (Beginning) 56,000 Salaries Expense 15,200 Service Revenue 42,200 Supplies 5,000 Utilities Expense 3,000 In addition, assume the following: A. There are five salaried employees. Salaries are paid every Friday for the current week. All past salaries have been paid. Two employees receive a salary of $700 per week and three employees earn $800 per week. January 31st is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of January. B. The prepaid rent account was created when the company signed and pre-paid for a 12 month lease on October 1st of the prior year. On that date, the company paid the full rent for the following twelve months. C. The balance of supplies on hand on January 31st was $2,000. D. The balance of the equipment represents a single asset that has a cost of 72,000 ($0 salvage value) and a useful life of 8 years. The company uses straight-line depreciation.

a. Identify the impact on the accounting equation for any required adjusting entries for the month of January.

b. Prepare a classified (identify current asset and liabilities separately from long term) balance sheet after adjusting entries as of January 31st .

Explanation / Answer

a. Accounting Equation Adjusting Journal entries Debit Credit Assets = Liabilities + Stockholders' Equity A. Salaries expense 2171 2171 -2171 Salaries payable 2171 ((2*700)/7*4)+((3*800)/7*4) B. Rent expense 2000 -2000 -2000 Prepaid rent 2000 (18000/9 mths.* 1 mth.) C. Supplies expense 3000 -3000 -3000 Supplies 3000 (5000-2000) D. Depreciation expense 750 750 -750 Accumulated Depreciation 750 (72000-0)/8 yr. /12 mths.*1 mth. 7921 7921 -5000 2921 -7921 ABC Inc. Trial Balance Unadjusted T/B Adjusting Entries Adjusted T/B Debit Credit Debit Credit Debit Credit Cash 22000 22000 Accounts Receivables 23000 23000 Supplies 5000 -3000 2000 Prepaid rent 18000 -2000 16000 Land 2000 2000 Equipment 72000 72000 Accumulated Depreciation 27000 750 27750 Long-term investment 55000 55000 Accounts payable 40000 40000 Salaries payable 2171 2171 Common stock 50000 50000 Retained Earnings (Beg.) 56000 56000 Salaries expense 15200 2171 17371 Service Revenue 42200 42200 Supplies expense 3000 3000 Utilities expense 3000 3000 Rent expense 2000 2000 Depreciation expense 750 750 Total 215200 215200 2921 2921 218121 218121 Income statement For the month of Jan Service Revenue 42200 Less: Operating expenses: Salaries expense 17371 Supplies expense 3000 Utilities expense 3000 Rent expense 2000 Depreciation expense 750 26121 Net income 16079 Classified Balance Sheet As at Jan 31 Assets Current assets Cash 22000 Accounts Receivables 23000 Supplies 2000 Prepaid rent 16000 Total Current assets 63000 Fixed assets Land 2000 Equipment 72000 Accumulated Depreciation-Equip. -27750 Long-term investment 55000 TotalFixed assets 101250 Total assets 164250 Liabilities & Equity Liabilities Current Liabilities Accounts payable 40000 Salaries payable 2171 Total Current Liabilities 42171 Equity Common stock 50000 Retained Earnings (56000+16079) 72079 Total equity 122079 Total Liabilities & Equity 164250

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