Question

0 Facts: Basic Services, Inc. prepares annual financial statements and accordingly records most of the company's adjusting journal entries just once per year in December. Basic purchases 100% of the office supplies on account from vendor, Standard Company. Basic provides you with the below unadjusted account balances as of 12/31/2017: Cash $24,950 Utilities Payable SO Accounts receivable 21,700 Common stock 50,000 Prepaid Advertising Expense Retained earnings 55,000 Prepaid Insurance Expense 4,020 Dividends 18,000 Office Supplies 9,000 Service Revenue 250,000 Store equipment 115,000 Advertising Expense 27,750 Office equipment 60,000 Salary Expense 118.000 Accumulated depreciation 22.000 Depreciation Expense 19,000 Accounts payable- Standard Co. 2,300 Office supplies expense 2.000 Dividends Payable 3,000 Insurance Expense 0 Interest Payable 0 Interest expense 0 Notes payable 60,000 Miscellaneous Expense 2,815 Rent Payable Rent Expense 18,700 Salaries Payable 0 Utilities Expense 7,865 Unearned Service Fees 6,500 0

answer choice E: None of the above

Answer 1

Sl.No	Account titles	Debit	Credit
1	Interest expense	1200
	Interest Payable		1200
	To record Accrued Interest for 4 months)
2	Unearned Service Revenue	2300
	Revenue		2300
	(To record earned revenue)
3	Insurance	3330
	Prepaid Insurance		3330
	(To record expired portion of two insurance policy)

Net Income Before Adjustments		53870
Add/Less: Adjustments
Revenue	2600
Insurance	-3330
Interest expense	-1200	-1930
Net Income after adjustments		51940

So the answer is option (a) $51940

Workings

1. Calculation of accrued Interest

Loan has taken on Sep 1.Henece interest for months ( from September to December) has to be recognized as Interest expense

Interest =60000*6%*4/12

               =1200

2. Calculation of expired portion of insurance policy

Basic has purchased two insurance policies with effective date of Jan 17

· First Insurance Policy $2070 for 18 months

Expired portion =2070/18*12=1380

· Second Insurance policy $1950 for 6 months. hence this policy has expired

· Total expired portion of insurance =1380+1950=3330