Question

Use the unadjusted trial balance of Electric Bike on December 31, 2020.

	Debit			Credit
Cash	$	7,700
Accounts receivable		22,265
Merchandise inventory		34,200
Store supplies		2,215
Office supplies		915
Prepaid insurance		4,655
Equipment		70,090
Accumulated depreciation, equipment				$	13,255
Accounts payable					7,600
Salaries payable					0
Braeden Li, capital					163,945
Braeden Li, withdrawals		60,000
Interest income					270
Sales					527,000
Sales returns and allowances		4,670
Cost of goods sold		380,760
Salaries expense		95,900
Rent expense		28,700
Supplies expense		0
Depreciation expense, equipment		0
Insurance expense		0
Totals	$	712,070		$	712,070

Required:
1. Record adjusting entries for the following information.

a. The records show that the equipment was estimated to have a total estimated useful life of 10 years with a residual value at the end of its life of $14,090.
b. The balance in the Prepaid Insurance account was reviewed and it was determined that $325 was unused at December 31, 2020.
c. A review of the store supplies on December 31, 2020, revealed a balance on hand of $1,880; a similar examination of the office supplies showed that $710 had been used.
d. Accrued salaries payable, $1,600.
e. A count of the merchandise inventory revealed a balance on hand December 31, 2020, of $33,440.

2. Prepare a multiple-step income statement showing the expenses in detail.

Answer 1

Adjusting entries:
S.no.	Accounts title and explanations				Debit $	Credit $
a.	Depreciation expenses				5600
	Accumulated dep (70090-14090)/10					5600
	(for depreciation expenses charged)
b.	Insurance expenses				4330
	Prepaid insurance (4655-325)					4330
	(for insurance expired for the period)
c.	Supplies expenses				710
	Office supplies					710
	(for supplied consumed)
	Supplies expenses				335
	Store supplies					335
	(for supplies consumed)
d.	Salaries expenses				1600
	Salaries Payable					1600
	(for salaries accrued)
e.	Cost of goods sold				760
	Merchandise inventory (34200-33440)					760
	(for shrinkage loss incurred)
Income Statement:
Revenue:
Sales			527000
Less: Sales return and allowance			4670
Net sales revenue				522330
Cost of goods sold		(380760+760)		381520
Gross Profit				140810
Operating expenses:;
Salaries expenses (95900+1600)			97500
Rent expenses			28700
Supplies expenses (Office)			710
Supplies expenses (Stores)			335
Depreciation expenses			5600
Insurance expenses			4330
Total expenses				137175
Net Income				3635