Question

Chirp Hearing is owned by Christina Howell and provides hearing aids and other auditory services. At the end of November 2018, the company had the following adjustments.

Nov 30 Interest on the bank loan is set at 10%, one month of interest has accrued

Nov 30 The balance of the prepaid insurance is for the remaining 10 months of the insurance policy, one month of insurance has been used

Nov 30 The equipment was purchased on September 1,2018 and will have a useful life of seven years, after which it will have no residual value, depreciation is recorded every month, record depreciation for November

Nov 30 Chirp hearing completed 650 of work that was previously unearned

Nov 30 Office supplies used during the month totaled 400

Use the following trial balance, complete the adjustments and the adjusted trial balance in the spreadsheet

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
	DR	CR	DR	CR	DR	CR
Cash	6250
Accounts Receivable	3440
Prepaid Insurance	2200
Office Supplies	1140
Equipment	15120
Accum Deprec-Equipment		360
Accounts Payable		2260
INterest Payable		0
Unearned Revenue		1240
Notes Payable		4800
Howell, Capital		12640
Howell, withdrawals	2100
Service Revenue		12500
Depreciation expense
Insurance expense
Interest expense
Office supplies expense
Rent expense	1650
Salaries expense	1900
Total	33800	33800

Answer 1

Preparing Worksheet:-

Chirp Hearing

Worksheet

November 30,2018

Accounts Title	Unadjusted	Trial Balance	Adjusting	Entries	Adjusted	Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$6,250				$6,250
Accounts Receivable	3,440				3,440
Prepaid Insurance	2,200			$220	1,980
Office Supplies	1,140			400	740
Equipment	15,120				15,120
Accumulated Depreciation, Equipment		$360		180		$540
Accounts Payable		2,260				2,260
Interest Payable		0		40		40
Unearned Revenue		1,240	$650			590
Notes Payable		4,800				4,800
Howell, Capital		12,640				12,640
Howell, Withdrawals	2,100				2,100
Service Revenue		12,500		650		13,150
Depreciation Expense	0		180		180
Insurance Expense	0		220		220
Interest Expense	0		40		40
Office Supplies Expense	0		400		400
Rent Expense	1,650				1,650
Salaries Expense	1,900				1,900
Totals	$33,800	$33,800	$1,490	$1,490	$34,020	$34,020

Chirp Hearing

​​​​​​Income Statement

For the month of November 30,2018

Accounts Title	Amount	Amount
Service Revenue		$13,150
Less:- Expenses:-
Depreciation Expense	$180
Insurance Expense	220
Interest Expense	40
Office Supplies Expense	400
Rent Expense	1,650
Salaries Expense	1,900
Total Expenses		$(4,390)
Net Income		$8,760

Chirp Hearing

Statement of Owner's Equity

For the month Ended November 30,2018

Accounts Title	Amount
Howell, Capital, Beginning	$12,640
Less:- Howell, Withdrawals	(2,100)
	$10,540
Add:- Net Income	8,760
Howell, Capital, Ending	$19,300

Chirp Hearing

Balance Sheet

November 30,2018

Assets	Amount	Liabilities and Owner's Equity	Amount
Current Assets:-		Liabilities:-
Cash	$6,250	Current Liabilities:-
Accounts Receivable	3,440	Accounts Payable	$2,260
Prepaid Insurance	1,980	Interest Payable	40
Office Supplies	740	Unearned Revenue	590
Total Current Assets	$12,410	Total Current Liabilities	$2,890
Non - Current Assets:-		Long-term Liabilities:-
Equipment	15,120	Notes Payable	4,800
Less:- Accumulated Depreciation, Equipment	(540)	Total Liabilities	$7,690
Total Non-Current Assets	$14,580	Owner's Equity:-
		Howell, Capital, Ending	19,300
Total Assets	$26,990	Total Liabilities and Owner's Equity	$26,990

Working Notes:-

1. Calculations for Interest Expense for one Month:-

Interest Expense=(Notes Payable×10%×1/12)

=$(4,800×10/100×1/12)

=$40

2. Calculations for Insurance Expense for one Month:-

Prepaid Insurance of $2,200 is for 10 months, so for one Month is $220 ($2,200/10).

3. Calculations for Depreciation Expense for one Month:-

Depreciation Expense=(Cost/Useful life of Equipment)×1/12

=$(15,120/7)×1/12

=$(2,160×1/12)

=$180

4. Chirp Hearing completed work for $650. So $650 subtracted from Unearned Revenue and Added to Service Revenue.

5. Office Supplies used during the month totaled $400. So $400 is Office Supplies Expense and Subtracted from Office Supplies.