Question

Following is the unadjusted trial balance of Skylar Gaming, Inc. at the end of its first year of operations, December 31, 20x7:

Account Name	DR.	CR.
Cash	$71,550
Accounts Receivable	$25,200
Supplies	$550
Prepaid Insurance	$12,000
Equipment	$31,750
Accumulated Depreciation-Equipment		$4,050
Accounts Payable		$6,700
Salaries Payable		$0
Unearned Revenue		$2,200
Common Stock		$45,700
Retained Earnings		$23,850
Dividends	$3,500
Revenue		$80,750
Depreciation Expense-Equipment	$2,000
Salaries Expense	$4,750
Insurance Expense	$3,100
Rent Expense	$4,200
Supplies Expense	$2,500
Utilities Expense	$2,150
	$163,250	$163,250

The following additional information is available:

1. Skylar Gaming, Inc. needs to accrue $2,000 in salaries that will not be paid until next month.
2. Skylar Gaming, Inc. has earned $2,000 of the services that were paid for in advance as included in the unearned revenue account.
3. At the end of the period, Skylar Gaming, Inc. has provided services in the amount of $500 to another customer (John Gartner). However, Skylar has not billed them yet since they only issue bills at the beginning of each month.
4. Skylar Gaming, Inc. needs to record the annual $1,025 of depreciation on the equipment.
5. One month of the 12-month insurance policy in prepaid insurance has been used up, and a journal entry is needed to reflect this.
6. At the end of the period, $125 in supplies are remaining

1. Prepare all necessary adjusting entries at December 31, 20x7 Descriptions are not needed.
2. Prepare an adjusted trial balance at December 31, 20x7.
3. Columns listed on the worksheet as income statement, statement of retained earnings, and balance sheet should be completed.
4. Prepare closing entries including descriptions.

Answer 1

Solution:

Given that the following information about Skylar Gaming Inc.

	ADJUSTING ENTRIES:
1.	Salaries expense	$2,000
	Salaries payable		$2,000
	Unearned revenue	$2,000
	Revenue		$2,000
	Accounts receivable	$500
	Revenue		$500
	Depreciation expense-Equipment	$1,025
	Accumulated expense-Equipment		$1,025
	Insurance expense	$1,000
	Prepaid insurance		$1,000
	Supplies expense (550-125)	$425
	Supplies		$425
2.	CLOSING ENTRIES:
	Revenue	$83,250
	Income summary		$83,250
	(To close revenue accounts)
	Income summary	$23,150
	Depreciation Expense-Equipment		$3,025
	Salaries Expense		$6,750
	Insurance Expense		$4,100
	Rent Expense		$4,200
	Supplies Expense		$2,925
	Utilities Expense		$2,150
	(To close expense accounts)
	Income summary	$60,100
	Retained earnings		$60,100
	(To close income summary)
	Retained earnings	$3,500
	Dividend		$3,500
	(To close dividend account)

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Account Name	DR.	CR.	DR.	CR.	DR.	CR.
Cash	$71,550				$71,550
Accounts Receivable	$25,200		$500		$25,700
Supplies	$550			$425	$125
Prepaid Insurance	$12,000			$1,000	$11,000
Equipment	$31,750				$31,750
Accumulated Depreciation-Equipment		$4,050		$1,025		$5,075
Accounts Payable		$6,700				$6,700
Salaries Payable		0		$2,000		$2,000
Unearned Revenue		$2,200	$2,000			$200
Common Stock		$45,700				$45,700
Retained Earnings		$23,850				$23,850
Dividends	$3,500				$3,500
Revenue		$80,750		$2,500		$83,250
Depreciation Expense-Equipment	$2,000		$1,025		$3,025
Salaries Expense	$4,750		$2,000		$6,750
Insurance Expense	$3,100		$1,000		$4,100
Rent Expense	$4,200				$4,200
Supplies Expense	$2,500		$425		$2,925
Utilities Expense	$2,150				$2,150
Net income	$163,250	$163,250	$6,950	$6,950	$166,775	$166,775
INCOME STATEMENT
Revenue		$83,250
Operating expenses:
Depreciation Expense-Equipment	$3,025
Salaries Expense	$6,750
Insurance Expense	$4,100
Rent Expense	$4,200
Supplies Expense	$2,925
Utilities Expense	$2,150
Total operating expenses		$23,150
Net operating income		$60,100
RETAINED EARNINGS
Beginning balance		$23,850
Add: Net income for the year		$60,100
Less: Dividends		$3,500
Ending balance		$80,450
BALANCE SHEET
Current Assets:
Cash	$71,550
Accounts receivable	$25,700
Supplies	$125
Prepaid insurance	$11,000
Total current assets		$108,375
Non-Current assets:
Equipment	$31,750
Accumulated Depreciation-Equipment	$5,075	$26,675
Total assets		$135,050
Current Liabilities:
Accounts Payable	$6,700
Salaries Payable	$2,000
Unearned Revenue	$200
Total current liabilities		$8,900
Shareholders' equity:
Common Stock	$45,700
Retained Earnings	$80,450	$126,150
Total liabilities & shareholders' equity		$135,050