Question

In: Accounting

Val’s Hair Emporium is a hair salon. Its unadjusted trial balance as of December 31, 2017,...

Val’s Hair Emporium is a hair salon. Its unadjusted trial balance as of December 31, 2017, follows, along with information about selected accounts.

  Account Name Debit Credit Further Information
  Cash $ 3,800 As reported on December 31 bank statement.
  Supplies 4,300 Based on count, only $3,200 of supplies still exist.
  Prepaid Rent 6,000 This amount was paid November 1 for rent through the end of January.
  Accounts Payable $ 1,500

This represents the total amount of bills received for supplies and utilities through December 15. Val estimates that the company has received $450 of utility services through December 31 for which it has not yet been billed.

  Wages Payable 0 Stylists have not yet been paid $150 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.
  Contributed Capital 2,000 This amount was contributed to the company in prior years.
  Retained Earnings 900 This is the balance reported at the end of last year.
  Hair Styling Revenue 75,800 Customers pay cash when they receive services.
  Wages Expense 29,100 This is the cost of stylist wages through December 30.
  Utilities Expense 12,200 This is the cost of utilities through December 15.
  Rent Expense 20,000 This year’s rent was $2,000 per month.
  Supplies Expense 4,800 This is the cost of supplies used through November 30.
  Income Tax Expense 0 The company has an average tax rate of 30 percent.
  
  Totals $ 80,200 $ 80,200
  

Required:
1.
Calculate the (preliminary) unadjusted net income for the year ended December 31, 2017.

2. Name the five pairs of balance sheet and income statement accounts that require adjustment.

3. Calculate the desired balances for each account listed in the unadjusted trial balance.

4. Prepare the adjusting journal entries that are required at December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

5-a. Calculate the adjusted net income that the company should report for the year ended December 31, 2017.

5-b. By how much did the adjustments in requirement (4) cause net income to increase or decrease?

Solutions

Expert Solution

Ans.

1.

Unadjusted Income Statement
For the Year Ended December 31, 2017
Hair Styling Revenue $ 75,800.00
Less: Expenses
Wages Expense $ 29,100.00
Utilities Expense $ 12,200.00
Rent Expense $ 20,000.00
Supplies Expense $    4,800.00
Income Tax Expense $                 -  
Total Expenses $ 66,100.00
preliminary unadjusted net income for 2017 $    9,700.00

2.

Balance Sheet Account Related Income Statement Account
Supplies Supplies Expense
Prepaid Rent Rent Expense
Accounts Payable Utilities Expense
Wages Payable Wages Expense
Income Tax Payable Income Tax Expense

3.

VAL's Hair Eporium Working
Adjusted Trial Balance
At December 31,2017
Accounts Title Debit Credit
Cash $                    3,800.00 No adjustment
Supplies $                    3,200.00 Given
Prepaid Rent $                    2,000.00 [6000 - ( 2000 * 2)]
Accounts Payable $    1,950.00 1500 + 450
Wages Payable $        150.00 Given
Income Tax Payable $    1,200.00 Working Note
Contributed Capital $    2,000.00 No adjustment
Retained Earnings $        900.00 No adjustment
Hair Styling Revenue $ 75,800.00 No adjustment
Wages Expense $                 29,250.00 29100 + 150
Utilities Expense $                 12,650.00 12200 + 450
Rent Expense $                 24,000.00 20000 + 4000
Supplies Expense $                    5,900.00 4800+4300-3200
Income Tax Expense $                    1,200.00 Working Note
Total $                 82,000.00 $ 82,000.00

Working Note:

Hair Styling Revenue $ 75,800.00
Less: Expenses
Wages Expense $ 29,250.00
Utilities Expense $ 12,650.00
Rent Expense $ 24,000.00
Supplies Expense $    5,900.00
Total Expenses $ 71,800.00
Income Before Taxes $    4,000.00
Income tax Expense @ 30% $    1,200.00

4.

Event Date Accounts Titles Debit Credit
a Dec-31 Supplies Expense $      1,100.00
      Supplies $      1,100.00
b Dec-31 Rent Expense $      4,000.00
         Prepaid Rent $      4,000.00
c Dec-31 Utilities Expense $         450.00
      Accounts Payable $          450.00
d Dec-31 wages Expense $         150.00
       Wages Payable $          150.00
e Dec-31 Income Tax Expense $      1,200.00
       Income Tax Payable $      1,200.00

5 - a)

Income Statement
For the Year Ended December 31, 2017
Hair Styling Revenue $              75,800.00
Less: Expenses
Wages Expense $                 29,250.00
Utilities Expense $                 12,650.00
Rent Expense $                 24,000.00
Supplies Expense $                    5,900.00
Income Tax Expense $                    1,200.00
Total Expenses $              73,000.00
Net Income $                2,800.00

5-b)

Unadjusted Income $                    9,700.00
Adjusted Income $                    2,800.00
Difference $                    6,900.00
Net Income Decreased by $      2,800.00

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