Question

Val’s Hair Emporium operates a hair salon. Its unadjusted trial balance as of December 31, 2018, follows, along with information about selected accounts.

Account Names	Debit				Credit				Further Information
Cash	$	4,800							As reported on December 31 bank statement.
Supplies		5,300							Based on count, only $1,800 of supplies still exist.
Prepaid Rent		9,000							This amount was paid November 1 for rent through the end of January.
Accounts Payable					$	2,000			This represents the total amount of bills received for supplies and utilities through December 15. Val estimates that the company has received $550 of utility services through December 31 for which it has not yet been billed.
Salaries and Wages Payable						0			Stylists have not yet been paid $200 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.
Common Stock						3,000			This amount was contributed for common stock in prior years.
Retained Earnings						800			This is the balance reported at the end of last year.
Service Revenue						92,400			Customers pay cash when they receive services.
Salaries and Wages Expense		30,100							This is the cost of stylist wages through December 30.
Utilities Expense		13,200							This is the cost of utilities through December 15.
Rent Expense		30,000							This year’s rent was $3,000 per month.
Supplies Expense		5,800							This is the cost of supplies used through November 30.
Income Tax Expense		0							The company has an average tax rate of 20%.
Totals	$	98,200			$	98,200			4-a. Prepare the adjusted net income that the company should report for the year ended December 31, 2018. 4-b. By what dollar amount did the adjustments in requirement (3) cause net income to increase or decrease?

Answer 1

4a.

Income Statement
Revenue	$            92,400
Expenses
Wages Expense	$            30,300	=30100+200
Utilities Expense	$            13,750	=13200+550
Rent Expense	$            36,000	=30000+6000
Supplies Expense	$              9,300	=5800+5300-1800
Total Expenses	$            89,350
Income before tax	$              3,050
Income tax @20%	$                  610
Net Income	$              2,440

4b.
Net Income decrease = $13300-2440 = $10860

Income Statement (Unadjusted)
Revenue	$            92,400
Expenses
Wages Expense	$            30,100
Utilities Expense	$            13,200
Rent Expense	$            30,000
Supplies Expense	$              5,800
Total Expenses	$            79,100
Income before tax	$            13,300
Income tax @30%	$                     -
Net Income	$            13,300