Question

Following is the unadjusted trial balance of Baltimore Rentals Corporation at the end of its first year of operations, December 31, 20X5:

Account	Debit	Credit
Cash	3,300
Accounts receivable	4,000
Supplies	500
Truck	8,000
Acc. dep. – truck		0
Accounts payable		5,000
Unearned rent revenue		2,400
Income taxes payable		0
Capital Stock		7,000
Dividends	1,000
Rent earned		16,000
Commissions expense	1,000
Depreciation expense-truck	0
Supplies expense	0
Salaries expense	7,000
Telephone expense	0
Income tax expense	0
Rent expense	5,600
	30,400	30,400

The following additional information is available:

A physical count indicates that $300 of supplies is still on hand at December 31.

The truck was purchased on July 1; it has an estimated useful life of 4 years.

One day of salaries for December 31 is unpaid; the unpaid amount of $200 will be included in the first Friday payment in January.

The balance in the Unearned Rent Revenue account represents six months’ rental of warehouse space, effective October 1.

A $100 bill for December telephone charges has not yet been recorded.

Income taxes expense for the year is $300. This amount will be paid in the next fiscal year.

Required:

Prepare all necessary adjusting entries at December 31, 20x5, including general ledger account numbers. Descriptions are not needed.

Using a worksheet template, prepare an adjusted trial balance at December 31, 20x5.

Using a worksheet template, prepare an income statement, statement of retained earnings, and a balance sheet.

Prepare closing entries including descriptions.

Answer 1

• All working forms part of the answer
• Adjusting Entries with working if necessary

General Journal	Dr (in $)	Cr (in $)	Working
Supplies expense	200		Opening balance - Closing balance
Supplies		200	(500-300)
Depreciation expense	1000		(Cost/Life)x6month/12 month
Acc. dep. – truck		1000	(8000/4)x6/12
Salaries expense	200
Salaries Payable		200
Unearned rent revenue	1200		Oct-Dec=3 month
Rent earned		1200	(2400x3/6)
Telephone expense	100
Expense payable		100
Income tax expense	300
Income tax payable		300

• Adjusted Trial balance and its working

	Unadjusted balances		Adjustment entries effect		Adjusted Trail Balance
Account	Debit	Credit	Debited by	Credited by	Debit	Credit
Cash	3300				3300
Accounts receivable	4000				4000
Supplies	500			200	300
Truck	8000				8000
Acc. dep. – truck		0		1000		1000
Accounts payable		5000				5000
Unearned rent revenue		2400	1200			1200
Income taxes payable		0		300		300
Capital Stock		7000				7000
Dividends	1000				1000
Rent earned		16000		1200		17200
Commissions expense	1000				1000
Depreciation expense-truck	0		1000		1000
Supplies expense	0		200		200
Salaries expense	7000		200		7200
Telephone expense	0		100		100
Income tax expense	0		300		300
Rent expense	5600				5600
Salaries Payable				200		200
Expense Payable				100		100
					0
Total	30400	30400	3000	3000	32000	32000

• Income Statement

Rent earned	$17200
Expenses:
Commissions expense	1000
Depreciation expense-truck	1000
Supplies expense	200
Salaries expense	7200
Telephone expense	100
Income tax expense	300
Rent expense	5600
Total expenses	$15400
Net Income	$1800

• Statement of Retained Earnings

Opening Balance	$0
Add: Net Income	$1800
Less: Dividend	$1000
Closing Balance	$800

• Balance Sheet

ASSETS	Amount ($)
Cash	3300
Accounts receivable	4000
Supplies	300
Truck	8000
Acc. dep. – truck	-1000
Total ASSETS	$14600
LIABILITIES	Amount ($)
Accounts payable	5000
Unearned rent revenue	1200
Income taxes payable	300
Salaries Payable	200
Expense Payable	100
Total LIABILITIES	6800
EQUITY	Amount ($)
Capital Stock	7000
Retained Earnings	800
Total EQUITY	7800
Total LIABILITIES & EQUITY	$14600

• Closing Entries

General Journal	Dr (in $)	Cr (in $)
Rent earned	17200
Income Summary		17200
(Revenue account closed)
Income Summary	15400
Commissions expense		1000
Depreciation expense-truck		1000
Supplies expense		200
Salaries expense		7200
Telephone expense		100
Income tax expense		300
Rent expense		5600
(Expenses account closed)
Income Summary	1800
Retained Earnings		1800
(Net Income transferred)
Retained Earnings	1000
Dividends		1000
(dividends a/c closed)