During the course of your examination of the financial statements of Trojan Corp

Question

During the course of your examination of the financial statements of Trojan Corporation for the year ended December 31, 2018, you come across several items needing further consideration. Currently. net income is $85,000. a. An insurance policy cover ng 12 months was purchased on October 1, 2018 for 5,000. The entire amount was debited to Prepaid nsurance and n adi ting entr was made or this em n 2018 b. During 2018, the company received a $2,500 cash advance from a customer for services to be performed in 2019. The $2,500 was incorrectly credited to Service Revenue c. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $2,000 were on hand at December 31, 2018. d. Trojan borrowed $55,000 from a local bank on September 1, 2018, Principal and interest at 12% will be paid on August 31, 2019, No accrual was made for interest in 2018 Required: Using the information in a. through d. above, determine the proper amount of net income as of December 31, 2018. (Amounts to be deducted should be indicated with a minus sign.) Net income (unadjusted) a. Adjustment for insurance b. Adjustment for deferred revenue c. Adjustment for supplies d. Adjustment for interest Net income (adjusted)

Explanation / Answer

Determine proper amount of net income :

Net income (unadjusted) 85000 Adjustment for insurance (15000/12*3) (3750) Adjustment for deferred revenue (2500) Adjustment for supplies 2000 Adjustment for interest (55000*12%*4/12) (2200) Net income (adjusted) 78550

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