Question

The Smith Engineering Company began operations on December 1, 2017. The unadjusted trial balance of the Smith Engineering Company as of December 31, 2017 is found on the trial balance tab. The following information is required to prepare the necessary adjusting entries for the Smith Engineering Company found in chapter 3.

1) The balance in Prepaid insurance represents a 24-month policy that went into effect on December 1, 2017. Review the unadjusted balance in Prepaid insurance, and prepare the necessary adjusting entry, if any.

2) Based on a physical count, supplies on hand total $3,300. Review the unadjusted balance in Supplies, and prepare the necessary adjusting entry, if any.

3) The equipment is expected to have a 4-year useful life, and be worth about $9,000 at the end of four years. Review the unadjusted balance in Accumulated depreciation, and prepare the necessary adjusting entry, if any.

4) On December 26, the client paid a $3,600 60-day fee in advance, covering December 27 to February 24. Review the unadjusted balance in Unearned Consulting Revenue, and prepare the necessary adjusting entry, if any.

5) Smith Engineering's sole employee earns $80 per day for a five-day workweek beginning on Monday and ending on Friday. The employee was last paid on Friday, December 26. Review the unadjusted balance in Salaries payable, and prepare the necessary adjusting entry, if any.

6) In the second week of December, Smith Engineering agreed to provide 30 days of consulting services to a local fitness club for a fixed fee of $2,940. The terms of the initial agreement call for Smith Engineering to provide services from December 12, 2017, through January 10, 2018, or 30 days of service. The club agrees to pay Smith Engineering $2,940 on January 10, 2018, when the service period is complete. Review the unadjusted balance in Consulting revenue, and prepare the necessary adjusting entry, if any.

Prepare the required adjusting and closing entries for the Smith Engineering Company.

Prepare a general journal, income statement, and balance sheet.

Unadjusted

~a(39)~
Trial Balance
December 31, 2017
Account Title	Debit	Credit
Cash	13,525
Supplies	4,400
Prepaid insurance	3,000
Equipment	25,800
Accounts payable		8,200
Unearned consulting revenue		3,600
S. Smith, Capital		32,000
S. Smith, Withdrawals	800
Consulting revenue		6,100
Rental revenue		350
Salaries expense	1,360
Rent expense	1,050
Utilities expense	315
Total	50,250	50,250

Answer 1

• All working forms part of the answer
• Adjustment Journal Entries

S.no.	General Journal	Dr (in $)	Cr (in $)	Working
1	Insurance expense	125		(3000=24 month)
	Prepaid Insurance		125	Dec = 3000 x 1/24
2	Supplies expense	1100		Opening balance - Closing balance
	Supplies		1100	(4400 - 3300)
3	Depreciation expense	350		(cost - Salvage value)/Life
	Accumulated Depreciation		350	[((25800-9000)/4) x 1/12]
4	Unearned consulting revenue	300		(3600x5days/60 days)
	Consulting revenue		300	Dec27-Dec31=5 days
5	Salaries expenses	240		Dec29 to Dec 31
	Salaries payable		240	(80 x 3 days)
6	Consulting revenue	980		10 days of January=Unearned
	Unearned consulting revenue		980	(2940 x 10/30days)

• Adjusted Trial Balance, after adjusting entries

Trial Balance
December 31, 2017
Account Title	Debit ($)	Credit ($)
Cash	13525
Supplies	3300
Prepaid insurance	2875
Equipment	25800
Accounts payable		8200
Unearned consulting revenue		4280
S. Smith, Capital		32000
S. Smith, Withdrawals	800
Consulting revenue		5420
Rental revenue		350
Salaries expense	1600
Rent expense	1050
Utilities expense	315
Insurance expense	125
Supplies expense	1100
Depreciation expense	350
Salaries payable		240
Accumulated Depreciation		350
Total	$50840	$50840

• Income Statement

		Amount (in $)
Consulting revenue	5420
Rental revenue	350
Total Revenues		$5770
Expenses:
Salaries expense	1600
Rent expense	1050
Utilities expense	315
Insurance expense	125
Supplies expense	1100
Depreciation expense	350
Total expenses		$4540
Net Income		$1230

• Balance Sheet

Assets	Amount (in $)
Cash	13525
Supplies	3300
Prepaid insurance	2875
Equipment	25800
(Less) Accumulated Depreciation	350
Total Assets	$45150
Liabilities
Accounts payable	8200
Unearned consulting revenue	4280
Salaries payable	240
Total Liabilities	12720
Owner's Equity
S. Smith, Capital	32000
(Less) Drawings	800
(Add) Net Income	1230
Total Owner's Equity	32430
Total Liabilities and Equity	$45150

• Closing Entries

S.no.	General Journal	Dr (in $)	Cr (in $)
1	Rental revenue	5420
	Consulting revenue	350
	Income Summary		5770
2	Income Summary	4540
	Salaries expense		1600
	Rent expense		1050
	Utilities expense		315
	Insurance expense		125
	Supplies expense		1100
	Depreciation expense		350
3	Income Summary	1230
	S. Smith, Capital		1230
4	S. Smith, Capital	800
	S. Smith, Withdrawals		800