Question

Solve this following question:

Afia Agency was founded in January 2017. Presented below is the trial balance as of March 31, 2020, the end of the company’s fiscal year.

Afia Agency Trial Balance March 31, 2020
	Debit	Credit
Cash	$135,000
Accounts Receivable	97,500
Allowance for Doubtful Accounts		$  2,300
Notes Receivable	38,700
Art Supplies	34,700
Prepaid Rent	26,500
Printing Equipment	65,000
Accumulated Depreciation – Printing Equipment		12,000
Building	160,000
Accumulated Depreciation – Building		33,000
Notes Payable		30,800
Accounts Payable		28,500
Unearned Advertising Revenue		34,800
Share Capital – Ordinary		300,000
Retained Earnings		39,500
Dividends	22,200
Advertising Revenue		278,750
Salaries Expense	114,300
Utilities Expense	22,600
Insurance Expense	16,750
Miscellaneous Expense	26,400
Totals	$759,650	$759,650

Instructions

a) Prepare the adjusting entries for these accounts:

- Art supplies (Supplies expense)

- Accumulated Depreciation – Printing Equipment

- Accumulated Depreciation – Building

- Allowance for doubtful Accounts (Bad debt expense)

- Notes receivable (Interest revenue)

- Notes payable (Interest expense)

- Salaries expense

- Rent Expense

- Unearned Advertising Revenue

You need to set your own assumptions in order to adjust the accounts. Those assumptions should be in consistency with your trial balance.

Example The trial balance is showing the following balance for “Art Supplies”: Dr Cr Art Supplies 34,700 Your assumption could be formulated as follows: Art Supplies: An inventory count at the end of the year reveals that $4,700 of supplies are still on hand. So the cost of supplies used = 34,700-4,700=30,000 Adjusting entry for supplies:        Dr: Supplies Expense                                       30,000                             Cr: Art Supplies                                                30,000

You need to do same for the other adjustments. You can follow the textbook pp 106-117.

b) Post the adjusting entries to the ledger

c) Prepare an adjusted trial balance

d) Prepare the worksheet

e) Prepare financial statements: Income statement, retained earnings statement, and statement of financial position

f) Journalize and post the closing entries

g) Prepare a post-closing trial balance

Answer 1

Solution.

a) Assuption Made for Adjusting Jounal Entries.
1) Art Supplies on is hand is $4,700
2) Depreciation expense on Building is $11,000 and Printing equipment is $4,000
3) Allowanc for Doubtfule Account for the year is $7,300
4) Interest on Notes Receivable is accrued is $1700.
5) Interest on Note payable is accrued $ 1,500.
6) Salaries unpaid is $10,700.
7) Rent expired is $6,500.
8) Service provided with respect of unearned revenue is $14,800.
Account Tittle	Debit	Credit
Supplies Expense	$                     4,700
Art Supplies		$                4,700
Depreciation Expense	$                    15,000
Accum. Depreciation-Building		$               11,000
Accum. Depreciation-P.Equipment		$                4,000
Bad Debt Expense	$                     7,300
Allowance for doubtful accounts		$                7,300
Interest Receivable	$                     1,700
Interest Revenue		$                1,700
Interest Expense	$                     1,500
Interest Payable		$                1,500
Salaries Expense	$                    10,700
Salaries Payable		$               10,700
Rent Expense	$                     6,500
Prepaid Rent		$                6,500
Unearned Advertising Revene	$                    14,800
Advertising Revenue		$               14,800

Adjusted Trial Balance
For the month ended March 31, 2020
Account Tittle	Debit	Credit
Cash	$   1,35,000
Account Receivable	$     97,500
Allowance for Doubtful Accounts		$    10,000
Notes Receivable	$     38,700
Art Supplies	$       4,700
Interest Receivable	$       1,700
Prepaid Rent	$     20,000
Printing Equipment	$     65,000
Accumulated Depreciation-Printing		$    16,000
Building	$   1,60,000
Accumulated Depreciation-Building		$    44,000
Note Payable		$    30,800
Account Payable		$    28,500
Salaries Payable		$    10,700
Interest Payable		$      1,500
Unearned Advertising Revenue		$    20,000
Share Capital, Ordinary		$ 3,00,000
Retained Earnings		$    39,500
Dividend	$     22,200
Advertising Revenue		$ 2,93,550
Interest Revenue		$      1,700
Salaries Expense	$   1,25,000
Utilities Expense	$     22,600
Insurance Expense	$     16,750
Miscellaneous Expense	$     26,400
Supplies Expense	$     30,000
Depreciation Expense	$     15,000
Interest Expense	$       1,500
Rent Expense	$       6,500
Bad Debt Expense	$       7,700
Total	$   7,96,250	$ 7,96,250

	Unadj. Trial Balance		Adjustments		Adjusted Trial Balance
Account Tittle	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$   135,000				$   135,000
Account Receivable	$     97,500				$     97,500
Allowance for Doubtful Accounts		$     2,300		$      7,700		$     10,000
Notes Receivable	$     38,700				$     38,700
Art Supplies	$     34,700			$    30,000	$       4,700
Interest Receivable			$       1,700		$       1,700
Prepaid Rent	$     26,500			$      6,500	$     20,000
Printing Equipment	$     65,000				$     65,000
Accumulated Depreciation-Printing		$    12,000		$      4,000		$     16,000
Building	$   160,000				$   160,000
Accumulated Depreciation-Building		$    33,000		$    11,000		$     44,000
Note Payable		$    30,800				$     30,800
Account Payable		$    28,500				$     28,500
Salaries Payable				$    10,700		$     10,700
Interest Payable				$      1,500		$       1,500
Unearned Advertising Revenue		$    34,800	$     14,800			$     20,000
Share Capital, Ordinary		$ 300,000				$   300,000
Retained Earnings		$    39,500				$     39,500
Dividend	$     22,200				$     22,200
Advertising Revenue		$ 278,750		$    14,800		$   293,550
Interest Revenue				$      1,700		$       1,700
Salaries Expense	$   114,300		$     10,700		$   125,000
Utilities Expense	$     22,600				$     22,600
Insurance Expense	$     16,750				$     16,750
Miscellaneous Expense	$     26,400				$     26,400
Supplies Expense			$     30,000		$     30,000
Depreciation Expense			$     15,000		$     15,000
Interest Expense			$       1,500		$       1,500
Rent Expense			$       6,500		$       6,500
Bad Debt Expense			$       7,700		$       7,700
Total	$   759,650	$ 759,650	$     87,900	$    87,900	$   796,250	$   796,250

Afia Agency
Income Statement
For the Year Ended March 31, 2020
Advertising Revenue		$ 2,93,550
Operating Expense:
Salaries Expense	1,25,000
Utilities Expense	$       22,600
Insurance Expense	$       16,750
Miscellaneous Expense	$       26,400
Supplies Expense	$       30,000
Depreciation Expense	$       15,000
Rent Expense	$         6,500
Bad Debt Expense	$         7,700
Total Operating Expense		$ 2,49,950
Net Operating Income		$   43,600
Other Income and Expense
Interest Revenue	$         1,700
Interest Expense	$       -1,500	$         200
Net Income		$   43,800
Afia Agency
Statement of Retained Earnings
For the Year Ended March 31, 2020
Retained Earnings:
Beg. Balance	$       39,500
Net Income	$       43,800
Dividend	$      -22,200
Ending Balance		$     61,100
Afia Agency
Statement of Retained Earnings
For the Year Ended March 31, 2020
Assets
Cash	$    1,35,000
Account Receivable	$       97,500
Allowance for Doubtful Accounts	$      -10,000
Notes Receivable	$       38,700
Art Supplies	$         4,700
Interest Receivable	$         1,700
Prepaid Rent	$       20,000
Printing Equipment	$       65,000
Accumulated Depreciation-Printing	$      -16,000
Building	$    1,60,000
Accumulated Depreciation-Building	$      -44,000
Total Assets		$ 4,52,600
Liabilities and Shareholders' Equity
Liabilities
Note Payable	$       30,800
Account Payable	$       28,500
Salaries Payable	$       10,700
Interest Payable	$         1,500
Unearned Advertising Revenue	$       20,000
Total Liabilities		$       91,500
Shareholders' Equity
Share Capital, Ordinary	$    3,00,000
Retained Earnings	$       61,100
Shareholders' Equity		$ 3,61,100
Total Liabilities and shareholders' Equity		$ 4,52,600