Question

In: Accounting

Romero started his own consulting firm, Romero Company, on July 1, 2018. The trial balance at...

Romero started his own consulting firm, Romero Company, on July 1, 2018. The trial balance at July 31 is shown below.

ROMERO COMPANY

Trial Balance

July 31, 2018

Debit

Credit

Cash

23,150

Accounts receivable

5,000

Supplies

4,000

Prepaid insurance

3,000

Equipment

13,000

Notes payable

15,000

Accounts payable

7,500

Unearned service revenue

4,000

Owner’s capital

18,750

Service revenue

12,900

Salaries and wages expense

7,000

Rent expense

3,000

$ 58,150

$ 58,150

Other data:

1. Supplies on hand at July 31 are $750.

2. A utility bill for $350 has not been recorded and will not be paid until next month.

3. The insurance policy is for a year.

4. $1,200 of unearned service revenue remain unearned.

5. Romero company pays its employees total salaries of $7,250 every Monday for the preceding 5-day week (Monday through Friday). On Monday July 30, employees were paid for the week ending July 27. All employees worked the last 2 days of the month of July 2018.

6. The equipment is being depreciated over a 5-year life with no salvage value.

7. Invoices representing $3,200 of services performed during the month have not been recorded as of July 31.

8. Romero company borrowed $15,000 by signing a 7.3%, two-year note on July 11th, 2018.

Instructions

a. Prepare the adjusting entries for the month of July.

b. Prepare the Classified Balance sheet at Dec. 31, 2018.

Solutions

Expert Solution

Requirement a:

Date Account title and explanation Debit Credit
July 31 Supplies expense [$4,000 - $750] $3,250
Supplies $3,250
[To record supplies expense]
July 31 Utilities expense $350
Utilities payable $350
[To record accrued utilities expense]
July 31 Insurance expense [$3,000/12] $250
Prepaid insurance $250
[To record insurance expense]
July 31 Unearned service revenue [$4,000 - $1,200] $2,800
Service revenue $2,800
[To record revenue earned from unearned]
July 31 Depreciation Expense [($13,000/5 years) x 1/12] $217
Accumualted depreciation-equipment $217
[To record depreciation expense]
July 31 Accounts receivable $3,200
Service revenue $3,200
[To record accrued revenue]
July 31 Interest expense [$15,000 x 7.3% x (1/12)] $91
Interest payable $91
[To record accrued interest expense]

Requirement b:

Balance Sheet
At July 31,2018
Assets Liabilities and Owner's equity
Current assets: Current liabilities:
Cash $23,150 Accounts payable $7,500
Accounts receivable [5000+3200] $8,200 Utilities payable $350
Supplies $750 Interest payable $91
Prepaid insurance [3000-250] $2,750 Unearned service revenue $4,000
Total current assets $34,850 Total current liabilities $11,941
Property,plant and equipment: Notes payable $15,000
Equipment $13,000 Total liabilities $26,941
Accumulated depreciation-equipment ($217)
Total property,pant and equipment $12,783 Owner's Equity:
Owner's capital $20,692
Total Assets $47,633 Total liabilities and Owner's equity $47,633

Calculations:

Adjusted Trial Balance
Debit Credit
Cash $23,150
Accounts receivable [5000+3200] $8,200
Supplies $750
Prepaid insurance [3000-250] $2,750
Equipment $13,000
Accumulated depreciation-equipment $217
Notes payable $15,000
Accounts payable $7,500
Utilities payable $350
Interest payable $91
Unearned service revenue $4,000
Owner’s capital $18,750
Service revenue [12900+3200] $16,100
Salaries and wages expense $7,000
Rent expense $3,000
Supplies expense $3,250
Utilities expense $350
Insurance expense $250
Depreciation expense $217
Interest expense $91
Total $62,008 $62,008

.

Income Statement
Service revenue [12900+3200] $16,100
Expenses:
Salaries and wages expense $7,000
Rent expense $3,000
Supplies expense $3,250
Utilities expense $350
Insurance expense $250
Depreciation expense $217
Interest expense $91
Total expenses $14,158
Net income $1,942
Statement of Changes in Owner's equity
Owner's equity July 1 $18,750
Add: net income $1,942
Owner's equity July 31 $20,692

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