Question

The Smith Engineering Company began operations on December 1, 2017. The unadjusted trial balance of the Smith Engineering Company as of December 31, 2017 is found on the trial balance tab. The following information is required to prepare the necessary adjusting entries for the Smith Engineering Company found in chapter 3.

1) The balance in Prepaid insurance represents a 24-month policy that went into effect on December 1, 2017. Review the unadjusted balance in Prepaid insurance, and prepare the necessary adjusting entry, if any.

2) Based on a physical count, supplies on hand total $3,300. Review the unadjusted balance in Supplies, and prepare the necessary adjusting entry, if any.

3) The equipment is expected to have a 4-year useful life, and be worth about $9,000 at the end of four years. Review the unadjusted balance in Accumulated depreciation, and prepare the necessary adjusting entry, if any.

4) On December 26, the client paid a $3,600 60-day fee in advance, covering December 27 to February 24. Review the unadjusted balance in Unearned Consulting Revenue, and prepare the necessary adjusting entry, if any.

5) Smith Engineering's sole employee earns $80 per day for a five-day workweek beginning on Monday and ending on Friday. The employee was last paid on Friday, December 26. Review the unadjusted balance in Salaries payable, and prepare the necessary adjusting entry, if any.

6) In the second week of December, Smith Engineering agreed to provide 30 days of consulting services to a local fitness club for a fixed fee of $2,940. The terms of the initial agreement call for Smith Engineering to provide services from December 12, 2017, through January 10, 2018, or 30 days of service. The club agrees to pay Smith Engineering $2,940 on January 10, 2018, when the service period is complete. Review the unadjusted balance in Consulting revenue, and prepare the necessary adjusting entry, if any.

Prepare the required adjusting and closing entries for the Smith Engineering Company.

Prepare a general journal, income statement, and balance sheet.

Unadjusted

Smith Engineering
Trial Balance
December 31, 2017
Account Title	Debit	Credit
Cash	13,525
Supplies	4,400
Prepaid insurance	3,000
Equipment	25,800
Accounts payable		8,200
Unearned consulting revenue		3,600
S. Smith, Capital		32,000
S. Smith, Withdrawals	800
Consulting revenue		6,100
Rental revenue		350
Salaries expense	1,360
Rent expense	1,050
Utilities expense	315
Total	50,250	50,250

Answer 1

General Journal
Date	Account	Post.Ref.	Debit	Credit
Adjusting entries:
Dec. 31, 2017
1	Insurance expense (3000 x 1/24)		125
	Prepaid insurance			125
	(To record insurance premiums expired)
2	Supplies expense		1100
	Supplies (4400 - 3300)			1100
	(To record supplies used)
3	Depreciation expense [(25800 - 9000)/4 x 1/12]		350
	Accumulated depreciation-equipment			350
	(To record depreciation on equipment)
4	Unearned consulting revenue		300
	Consulting revenue (3600 x 5/60)			300
	(To record consulting revenue earned)
5	Salaries expense		240
	Salaries payable (80 x 3)			240
	(To record salaries accrued)
6	Accounts receivable		1960
	Consulting revenue (2940 x 20/30)			1960
	(To record consulting revenue accrued)
Closing entries:
Dec. 31, 2017
1	Consulting revenue		8360
	Rental revenue		350
	Income summary			8710
	(To close revenue accounts)
2	Income summary		4540
	Salaries Expense			1600
	Rent Expense			1050
	Utilities Expense			315
	Supplies Expense			1100
	Insurance Expense			125
	Depreciation expense			350
	(To close expense accounts)
3	Income summary (8710 - 4540)		4170
	S. Smith, Capital			4170
	(To close income summary)
4	S. Smith, Capital		800
	S. Smith, Withdrawals			800
	(To close withdrawals to capital account)

Smith Engineering Company
Income Statement
For the Month Ended December 31, 2017
Revenues:
Consulting Revenue	8360
Rental revenue	350
Total revenues		8710
Expenses:
Salaries Expense	1600
Rent Expense	1050
Utilities Expense	315
Supplies Expense	1100
Insurance Expense	125
Depreciation expense	350
Total expenses		4540
Net income $		4170

Smith Engineering Company
Balance Sheet
December 31, 2017
Assets
Cash		13525
Accounts receivable		1960
Supplies		3300
Prepaid insurance		2875
Equipment	25800
Accumulated depreciation-equipment	-350	25450
Total assets		47110
Liabilities and Owner's Equity
Accounts payable		8200
Salaries payable		240
Unearned consulting revenue		3300
Total liabilities		11740
Owner's Equity
S. Smith, Capital		35370
Total liabilities and owner's equity		47110