Question

Val’s Hair Emporium operates a hair salon. Its unadjusted trial balance as of December 31, 2018, follows, along with information about selected accounts.

Account Names	Debit				Credit				Further Information
Cash	$	3,300							As reported on December 31 bank statement.
Supplies		3,800							Based on count, only $1,050 of supplies still exist.
Prepaid Rent		4,500							This amount was paid November 1 for rent through the end of January.
Accounts Payable					$	1,250			This represents the total amount of bills received for supplies and utilities through December 15. Val estimates that the company has received $400 of utility services through December 31 for which it has not yet been billed.
Salaries and Wages Payable						0			Stylists have not yet been paid $150 for their work on December 31.
Income Tax Payable						0			The company has paid last year’s income taxes but not this year’s taxes.
Common Stock						1,500			This amount was contributed for common stock in prior years.
Retained Earnings						900			This is the balance reported at the end of last year.
Service Revenue						67,550			Customers pay cash when they receive services.
Salaries and Wages Expense		28,600							This is the cost of stylist wages through December 30.
Utilities Expense		11,700							This is the cost of utilities through December 15.
Rent Expense		15,000							This year’s rent was $1,500 per month.
Supplies Expense		4,300							This is the cost of supplies used through November 30.
Income Tax Expense		0							The company has an average tax rate of 30%.
Totals	$	71,200			$	71,200

3. Prepare the adjusting journal entries that are required at December 31, 2018.

Answer 1

Solution

Val’s Hair Emporium

Adjusting Entries:

Adjusting Entries
Date	Account Titles	Debit	Credit
Dec 31, 2018	Supplies Expense	$2,750
	Supplies		$2,750
	(To record cost of supplies used during the year)
Dec 31, 2018	Rent Expense	$3,000
	Prepaid Rent		$3,000
	(To record rent expense for Nov and Jan; 4,500 x 2/3 = $3,000)
Dec 31, 2018	Utilities Expense	$400
	Utilities Payable		$400
	(To record accrued utilities expense)
Dec 31, 2018	Salaries and Wages Expense	$150
	Salaries and Wages Payable		$150
	(To record unpaid salaries)
Dec 31, 2018	Income Tax Expense	$495
	Income Tax Payable		$495
	(To record unpaid income tax)

Computations:

1. Income tax payable –

Income statement for the year –

Service Revenue	$67,550
Less: expenses:
supplies expense	$7,050
Rent Expense	$18,000
Salaries and wages expense	$28,750
Utilities Expense	$12,100
total expenses	$65,900
Earnings before tax	$1,650
income tax at 30%	$495
Net income	$1,155

Computations of total expenses;

Account Titles	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$3,300				$3,300
Supplies	$3,800			$2,750	$1,050
Prepaid Rent	$4,500			$3,000	$1,500
Accounts Payable		$1,250				$1,250
Utilities Payable				$400		$400
Salaries and wages payable				$150		$150
Income Tax Payable				$495		$495
Common Stock		$1,500				$1,500
Retained Earnings		900				$900
Service Revenue		$67,550				$67,550
Salaries and Wages expense	$28,600		$150		$28,750
Utilities Expense	$11,700		$400		$12,100
Rent Expense	$15,000		$3,000		$18,000
Supplies Expense	$4,300		$2,750		$7,050
Income Tax Expense					$495