Question

Online Consulting Service, a sole trader provides consultation services for businesses that wish to settle up online business. The customers are charged a monthly fee for consultation service.

It adjust its accounts on a monthly basis. You are provided the adjusted trial balance dated December 31, 2017. Adjusting entries have already been made for the first 11 months of 2017, but not for December.

Online Consulting Service, Inc.

Unadjusted trial balance

31 November 2017

                                                           

	$	$
	DR	CR
Cash	49,100
Consulting fees receivable	23,400
Prepaid office rent	6,300
Prepaid dues and subscriptions	300
Supplies	600
Equipment	36,000
Accumulated depreciation : equipment		10,200
Loan repayable, 2020		17,000
Unearned consulting fees		5,950
Capital		30,000
Account payable		32,700
Consulting fees earned		197,180
Salaries expense	88,820
Telephone expense	2,550
Rent expense	22,000
Income tax expenses	51,000
Dues & subscription expenses	560
Supplies expense	1,600
Depreciation expense: Equipment	6,600
Miscellaneous expenses	4,200
	293,030	293,030

Additional information is available as a source for preparing adjusting entries at 31 December

2017:

i) On 1 December, the enterprise signed a new rental agreement and paid three month’s rent in

   advance at a rate of $2,100 per month. This advance payment was debited to the Prepaid

   office rent account.

ii) Dues and subscriptions expiring during December amounted to $50.

iii) An estimate of supplies on hand was made and its estimated cost of unused supplies was

    $490.

iv) The useful life of the equipment has been estimated at five years (60 months) from date of

     acquisition.

v) Accrued interest on notes payable amounted to $100.

vi) Consulting fees valued at $2,580 were rendered during December to clients who had made

     payment in advance.

vii)It is customary for the firm to bill the customers only when the work is completed, at monthly

     intervals. At 31 December, consulting services valued at $11,000 had been rendered but not

     yet billed, No advance payment had been received from these clients.

ix) Salaries earned by employees but not paid as of December 31 amounted to $1,700.

x) The owner paid for his families holidays using business cash amounted to $4,200. This

     amount is recorded as miscellaneous expenses.

Required: to

record the above balances and adjustments into ledger accounts, balance the accounts and close the account by closing entries to income statement and carrying down relevant balances.

Prepare an adjusted trial balance as 31 December 2017 in spread sheet format as shown below:

            This spread sheet has to be prepared using Excel or any other software program.                                                                                                           

   

	Unadjusted trial balance as at		Adjustments		Adjusted Trial balance as at
Account	Dr	Cr	Dr	Cr	Dr	Cr

                                                                                                                                                (13)

     

       c) an income statement for the year                                                                               (20)

       d) a balance sheet as at 31 December,2017.                                                                 (20)

Section B

a) Explain the four accounting principles used in adjusting entries and illustrate using an

    example each from the question above.                                                                            (10)

b) Do a search on the Enron scandal and WorldCom scandal and make a brief summary of

    what improper accounting was carried out.                                                                       (10)

   

  

Answer 1

			Adjustments		Adjusted Trial balance as at 31dec
ledger accounts	Dr	Cr	Dr	Cr	Dr	Cr
Cash	49,100				49,100
Consulting fees receivable	23,400		11000		34400
Prepaid office rent	6,300			2100	4200		prepaid rent adjusted
Prepaid dues and subscriptions	300			50	250
Supplies	600			110	490
Equipment	36,000				36000
Accumulated depreciation : equipment		10,200		600		10800
Loan repayable, 2020		17,000				17000
Unearned consulting fees		5,950	2580			3370
Capital		30,000	4200			25800	drawings deducted from capital
Account payable		32,700		1800		34500	salaries accrued and interest on note added
Consulting fees earned		197,180		13580		210760
Salaries expense	88,820		1700		90520
Telephone expense	2,550				2550
Rent expense	22,000		2100		24100
Income tax expenses	51,000				51000
Dues & subscription expenses	560		50		610
Supplies expense	1,600		110		1710
Depreciation expense: Equipment	6,600		600		7200
Miscellaneous expenses	4,200		100	4200	100		drawings deducted from mis expenses/ interest on note debited
				total	302230	302230
	income statement
	Consulting fees earned		210760
	less:
	Salaries expense	90520
	Telephone expense	2550
	Rent expense	24100
	Income tax expenses	51000
	Dues & subscription expenses	610
	Supplies expense	1710
	Depreciation expense: Equipment	7200
	Miscellaneous expenses	100	-177790
	net income		32970
	Balance sheet
	assets:
	Cash	49,100
	Consulting fees receivable	34400
	Prepaid office rent	4200
	Prepaid dues and subscriptions	250
	Supplies	490
	Equipment	36000
	Accumulated depreciation : equipment	-10800
	total assets	113,640
	Liabilitiies
	Loan repayable, 2020	17000
	Unearned consulting fees	3370
	Capital	58770	net income is added to capital
	Account payable	34500
	total liabilities and capital	113640