In: Accounting
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?
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 |