Question:
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:
Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance:
Account | Debit | Credit |
Cash | $ 430,900 | |
Accounts Receivable | $158,000 | |
Supplies | $111,000 | |
Equipment | $120,000 | |
Accounts Payable | $ 45,900 | |
Unearned Service Revenue | $ 113,600 | |
Common Stock | $ 100,000 | |
Retained Earnings | -0- | |
Service Revenue | $ 649,200 | |
Wage Expense | $ 48,600 | |
Rent Expense | $ 18,000 | |
Utilities Expense | $ 6,200 | |
Administrative Expense | $ 16,000 | ___________ |
TOTALS | $ 908,700 | $ 908,700 |
In addition, Magic has not yet adjusted for the following:
1. The equipment was purchased on March 1 of the current year. It has a 10-year life, 10% salvage value and Magic uses the double declining balance method for depreciation. Magic records depreciation to the nearest full month.
2. On March 1, Magic prepaid $18,000 for 12 months of rent on an office/warehouse. The original entry was recorded as Rent Expense.
3. By December 31st, 60% of the services related to the Unearned Revenues had been performed.
4. Wages of $5,700 should be accrued and are scheduled to be paid on January 2.
5. Supplies of $33,000 were still on hand at year end.
6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible.
Part A:
To record AJE #2, Magic should do which of the following to record the correct adjustment:
A | credit Prepaid Rent for $3,000 |
B | debit Rent Expense for $15,000 |
C | Debit Prepaid Rent for $15,000 |
D | credit Rent Expense for $3,000 |
Part B:
Using the information presented above for Magic Cleaning Services, determine Net Income AFTER all adjustments have been recorded: $_____________________________
(*Note: When recording your answer, do not use a dollar sign or comma. Example: If your answer is $452,000, enter your answer as 452000.)
Part C:
Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Assets.
ASSETS | LIABILITIES | EQUITY |
[BLANK_A] |
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)
Part D:
Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total EQUITY.
ASSETS | LIABILITIES | EQUITY |
[BLANK_C] |
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)
Part E:
Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Liabilities.
ASSETS | LIABILITIES | EQUITY |
[Blank_B] |
(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)
Part A Answer:
Part B Answer and Workings:
Part B Workings and Explanations:
Part B Workings and Explanations:
Part C Final Answer:
Part D Final Answer:
Part E Final Answer:
Question: USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS: Magic Cleaning Services has a...
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