Question

please help me prepare the Income Statement

thank you!

126 130 Question 7 The Marigold Corp. opened for business on May 1, 2019. Its trial balance before adjustment on May 31 is as follows. Marigold Corp. Trial Balance May 31, 2019 Account Number Debit Credit 101 Cash $ 3,600 Supplies 2,050 Prepaid Insurance 3,000 Land 15,000 Buildings 59,400 Equipment 15,200 Accounts Payable $ 11,700 208 Unearned Rent Revenue 3,300 275 Mortgage Payable 40,000 Common Stock 35,600 429 Rent Revenue 12,600 Advertising Expense 650 726 Salaries and Wages Expense 3,400 732 Utilities Expense 900 $103,200 $103,200 In addition to those accounts listed on the trial balance, the chart of accounts for Marigold Corp. also contains the following accounts and account numbers: No. 142 Accumulated Depreciation-Buildings, No. 150 Accumulated Depreciation Equipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 619 Depreciation Expense, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.

Answer 1

To prepare the income statement, we need to consider the adjustments first. Let us see the effect of each adjustment on income statement.

1. Prepaid insurance is 1 year policy starting from May 1. We are preparing the income statement for the month of May. So, insurance expenses for one month is to be considered.

Insurance expenses = 3,000/12 = $250

2. Supples unused as at May 31 = $800

Balance in supplies before adjustment is $2,050. That means the difference of $1,250 (2,050-800) is supplies used during the month of May.

Supplies expenses = $1,250

3. Annual depreciation is given but we need to calculate the depreciation for a month.

Depreciation expenses= (2,976+1,524)/12 = $375

4. Morgage interest rate is 12%. Mortgage was taken on May 1. One month interest expenses is to be shown.

Interest expense = (40,000*12%)/12 = $400

5. Two-third of unearned rent revenue is revenue.

Revenue to be recognized = 3,300×2/3 = $2,200

6. Salaries of $800 is accrued but not paid on May 31 is to be added to Salaries and Wages expenses.

Income statement after considering all the above adjustments is as follows:

Marigold Corp. Income Statement For the month ended May 31, 2019 Revenues Rent revenue (12,600+2,200) 14,800 Expenses Advertising expenses 650 Salaries and Wages expense (3,400+800) 4,200 Utilities expenses 900 Insurance expenses 250 Supplies expenses 1,250 Depreciation expenses 375 Interest expense 400 Total expenses 8,025 Net profit 6,775