Question

The unadjusted trial balance for Black Inc. follows.

Unadjusted Trail Balance
31-Dec-20
Account	Debit	Credit
Cash	6,320
Accounts receivable	6,000
Prepaid lease expense	19,200
Supplies	11,000
Equipment	20,000
Accumulated depreciation-equipment		3,000
Accounts payable		2,000
Note payable		8,000
Common share		20,000
Retained earnings		8,000
Dividends	10,000
Service revenue		50,000
Interest expense	480
Salaries expense	13,000
Utility expense	2,000
Miscellaneous expense	3,000
Totals	91,000	91,000

Additional information for accounting adjustments

1. Black was required to pay the entire rental for a one-year lease beginning July 1 for $13,200 cash. Black recorded the payment as a debit to Prepaid Lease Expense.
2. A year-end count revealed $2,000 of supplies still available.
3. Annual depreciation expense on the equipment is $1,000.
4. Unpaid and unrecorded salaries is $2,000 at year-end.
5. The note payable calls for annual interest of 8%, payable each September 30. The principal amount of the note is not due for several years.

Required

1. Record the required adjusting journal entries.
2. Prepare the adjusted trial balance.
3. Prepare the income statement (single-step) for 2020 and the balance sheet at year-end 2020.
4. Prepare closing entries.

Answer 1

Requirement a:

Date	Account title and explanation	Debit	Credit
12/31/2020	Lease expense (19,200 x 6/12)	$9,600
	Prepaid lease expense		$9,600
	[To record lease expense]
12/31/2020	Supplies expense (11,000-2,000)	$9,000
	Supplies		$9,000
	[To record supplies expense]
12/31/2020	Depreciation expense	$1,000
	Accumulated depreciation-Equipment		$1,000
	[To record depreciation expense]
12/31/2020	Salaries expense	$2,000
	Salaries payable		$2,000
	[To record accrued salaries expense]
12/31/2020	Interest expense (8,000 x 8% x 3/12)	$160
	Interest payable		$160
	[To record accrued interest expense]

Requirement b:

Adjusted Trial Balance
For the year ended December 31,2020
Account Title	Debit	Credit
Cash	6,320
Accounts receivable	6,000
Prepaid lease expense	9,600
Supplies	2,000
Equipment	20,000
Accumulated depreciation-equipment		4,000
Accounts payable		2,000
Salaries payable		2,000
Interest payable		160
Note payable		8,000
Common share		20,000
Retained earnings		8,000
Dividends	10,000
Service revenue		50,000
Interest expense	640
Salaries expense	15,000
Utility expense	2,000
Miscellaneous expense	3,000
Lease expense	9,600
Supplies expense	9,000
Depreciation expense	1,000
Totals	94,160	94,160

Requirement c:

Income Statement
For the year ended December 31,2020
Revenues:
Service revenue		50,000
Expenses:
Interest expense	640
Salaries expense	15,000
Utility expense	2,000
Miscellaneous expense	3,000
Lease expense	9,600
Supplies expense	9,000
Depreciation expense	1,000
Total expenses		40,240
Net income		9,760

Requirement d:

Balance Sheet
For the year ended December 31,2020
Assets		Liabilities and stockholder's Equity
Cash	6,320	Accounts payable	2,000
Accounts receivable	6,000	Salaries payable	2,000
Prepaid lease expense	9,600	Interest payable	160
Supplies	2,000	Note payable	8,000
Equipment	20,000	Total liabilities	12,160
Less: Accumulated depreciation-equipment	-4,000	Stockholder's equity:
		Common share	20,000
		Retained earnings	7,760
		Total stockholder's equity	27,760
Total assets	39,920	Total liabilities and stockholder's equity	39,920

Retained earnings = Beg. Bal. + Net income - Dividends = 8,000+9,760-10,000 = 7,760

Requirement d:

Closing entries:

Date	Account title and explanation	Debit	Credit
12/31/2020	Service revenue	50,000
	Income Summary		50,000
	[To close revenue accounts]
12/31/2020	Income Summary	40240
	Interest expense		640
	Salaries expense		15,000
	Utility expense		2,000
	Miscellaneous expense		3,000
	Lease expense		9,600
	Supplies expense		9,000
	Depreciation expense		1,000
	[To close expenses accounts]
12/31/2020	Income summary (50,000-40,240)	9,760
	Retained earnings		9,760
	[To close income summary account]
12/31/2020	Retained earnings	10,000
	Dividends		10,000
	[To close dividends accounts]