Question

Use the following information to answer the questions below. The balances listed below were taken from the ABC Inc.’s unadjusted trial balance on January 31st. The company’s reporting period began on January 1st . Accounts Receivable $23,000 Accumulated Depreciation 27,000 Accounts Payable 40,000 Cash 22,000 Common Stock 50,000 Equipment 72,000 Land 2,000 Long-term investment 55,000 Prepaid Rent 18,000 Retained Earnings (Beginning) 56,000 Salaries Expense 15,200 Service Revenue 42,200 Supplies 5,000 Utilities Expense 3,000 In addition, assume the following: A. There are five salaried employees. Salaries are paid every Friday for the current week. All past salaries have been paid. Two employees receive a salary of $700 per week and three employees earn $800 per week. January 31st is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of January. B. The prepaid rent account was created when the company signed and pre-paid for a 12 month lease on October 1st of the prior year. On that date, the company paid the full rent for the following twelve months. C. The balance of supplies on hand on January 31st was $2,000. D. The balance of the equipment represents a single asset that has a cost of 72,000 ($0 salvage value) and a useful life of 8 years. The company uses straight-line depreciation.

a. Identify the impact on the accounting equation for any required adjusting entries for the month of January.

b. Prepare a classified (identify current asset and liabilities separately from long term) balance sheet after adjusting entries as of January 31st .

Answer 1

a.				Accounting Equation
	Adjusting Journal entries	Debit	Credit	Assets =	Liabilities +	Stockholders' Equity
A.	Salaries expense	2171			2171	-2171
	Salaries payable		2171
	((2*700)/7*4)+((3*800)/7*4)
B.	Rent expense	2000		-2000		-2000
	Prepaid rent		2000
	(18000/9 mths.* 1 mth.)
C.	Supplies expense	3000		-3000		-3000
	Supplies		3000
	(5000-2000)
D.	Depreciation expense	750			750	-750
	Accumulated Depreciation		750
	(72000-0)/8 yr. /12 mths.*1 mth.
		7921	7921	-5000	2921	-7921

ABC Inc.
Trial Balance	Unadjusted T/B		Adjusting Entries		Adjusted T/B
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	22000				22000
Accounts Receivables	23000				23000
Supplies	5000		-3000		2000
Prepaid rent	18000		-2000		16000
Land	2000				2000
Equipment	72000				72000
Accumulated Depreciation		27000		750		27750
Long-term investment	55000				55000
Accounts payable		40000				40000
Salaries payable				2171		2171
Common stock		50000				50000
Retained Earnings (Beg.)		56000				56000
Salaries expense	15200		2171		17371
Service Revenue		42200				42200
Supplies expense			3000		3000
Utilities expense	3000				3000
Rent expense			2000		2000
Depreciation expense			750		750
Total	215200	215200	2921	2921	218121	218121

Income statement
For the month of Jan
Service Revenue		42200
Less: Operating expenses:
Salaries expense	17371
Supplies expense	3000
Utilities expense	3000
Rent expense	2000
Depreciation expense	750	26121
Net income		16079

Classified Balance Sheet
As at Jan 31
Assets
Current assets
Cash	22000
Accounts Receivables	23000
Supplies	2000
Prepaid rent	16000
Total Current assets		63000
Fixed assets
Land	2000
Equipment	72000
Accumulated Depreciation-Equip.	-27750
Long-term investment	55000
TotalFixed assets		101250
Total assets		164250
Liabilities & Equity
Liabilities
Current Liabilities
Accounts payable	40000
Salaries payable	2171
Total Current Liabilities		42171
Equity
Common stock	50000
Retained Earnings (56000+16079)	72079
Total equity		122079
Total Liabilities & Equity		164250