Question

Val’s Hair Emporium operates a hair salon. Its unadjusted trial balance as of December 31, 2018, follows, along with information about selected accounts.

Account Names	Debit				Credit				Further Information
Cash	$	4,800							As reported on December 31 bank statement.
Supplies		5,300							Based on count, only $1,800 of supplies still exist.
Prepaid Rent		9,000							This amount was paid November 1 for rent through the end of January.
Accounts Payable					$	2,000			This represents the total amount of bills received for supplies and utilities through December 15. Val estimates that the company has received $550 of utility services through December 31 for which it has not yet been billed.
Salaries and Wages Payable						0			Stylists have not yet been paid $200 for their work on December 31.
Income Tax Payable						0			The company has paid last year’s income taxes but not this year’s taxes.
Common Stock						3,000			This amount was contributed for common stock in prior years.
Retained Earnings						800			This is the balance reported at the end of last year.
Service Revenue						92,400			Customers pay cash when they receive services.
Salaries and Wages Expense		30,100							This is the cost of stylist wages through December 30.
Utilities Expense		13,200							This is the cost of utilities through December 15.
Rent Expense		30,000							This year’s rent was $3,000 per month.
Supplies Expense		5,800							This is the cost of supplies used through November 30.
Income Tax Expense		0							The company has an average tax rate of 20%.
Totals	$	98,200			$	98,200

2. Name the five pairs of balance sheet and income statement accounts that require adjustment and indicate the amount of adjustment for each pair.

Answer 1

Please hit like if this helps, comment for any doubts.

Explanations:-

1) Rent for November and December of $3000*2 = $6000 is appearing in prepaid and needs to be booked as expense. Only $3000 for January rent should appear as prepaid rent.

2) Supplies worth $1800 are in stock and rest of the supplies ($5300 - $1800) = $3500 have been used and are to be bookes as an expense.

3) Utilities expense bill for 15 days has not been received but expense is booked on accrual basis on estimation.

5) Salaries and Wages expense of Dec 31 amounting to $200 is booked and shown as payable.

4) Income tax is booked as expense and shown as payable.

Income tax is calculated on the Net income @20%. ( 92400 - 30100 - 13200 - 30000 - 5800 - 6000 - 3500 - 550 - 200) = 3050 @ 20% = $610

Note:- Net income after all adjustments as done above is considered for the purpose of calculating income tax.