Preparing Adjusting Entries and Determining Account Balances
Terrific Temps fills temporary employment positions for local businesses. Some businesses pay in advance for services; others are billed after services have been performed. Advanced payments are credited to an account entitled Unearned Fees. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31,2011, follows. (Bear in mind that adjusting entries have already been made for the first 11 months of 2011, but not for December.)
TERRIFIC TEMPS UNADJUSTED TRIAL BALANCE DECEMBER 31, 2011 | ||
Cash | $ 27,020 |
|
Accounts receivable | 59,200 |
|
Unexpired insurance | 900 |
|
Prepaid rent | 3,000 |
|
Office supplies | 600 |
|
Equipment | 60,000 |
|
Accumulated depreciation: equipment |
| $ 29,500 |
Accounts payable |
| 4,180 |
Notes payable |
| 12,000 |
Interest payable |
| 320 |
Unearned fees |
| 6,000 |
Income taxes payable |
| 4,000 |
Unearned revenue |
| 20,000 |
Retained earnings |
| 49,000 |
Capital stock |
| 25,000 |
Dividends | 3,000 |
|
Fees earned |
| 75,000 |
Travel expense | 5,000 |
|
Insurance expense | 2,980 |
|
Rent expense | 9,900 |
|
Office supplies expense | 780 |
|
Utilities expense | 4,800 |
|
Depreciation expense: equipment | 5,500 |
|
Salaries expense | 30,000 |
|
Interest expense | 320 |
|
Income taxes expense | 12,000 |
|
| $225,000$ | 225,000 |
Other Data
1. Accrued but unrecorded fees earned as of December 31,2011, amount to $1,500.
2. Records show that $2,500 of cash receipts originally recorded as unearned fees had been earned as of December 31.
3. The company purchased a six-month insurance policy on September 1,2011, for $1,800.
4. On December 1,2011, the company paid its rent through February 28,2012.
5. Office supplies on hand at December 31 amount to $400.
6. All equipment was purchased when the business first formed. The estimated life of the equipment at that time was 10 years (or 120 months).
7. On August 1, 2011, the company borrowed $12,000 by signing a six-month, 8 percent note payable. The entire note, plus six months’ accrued interest, is due on February 1,2012.
8. Accrued but unrecorded salaries at December 31 amount to $2,700.
9. Estimated income taxes expense for the entire year totals $15,000. Taxes are due in the first quarter of 2012.
Instructions
a. For each of the numbered paragraphs, prepare the necessary adjusting entry (including an explanation).
b. Determine that amount at which each of the following accounts will be reported in the company’s 2011 income statement:
1. Fees Earned
2. Travel Expense
3. Insurance Expense
4. Rent Expense
5. Office Supplies Expense
6. Utilities Expense
7. Depreciation Expense: Equipment
8. Interest Expense
9. Salaries Expense
10. Income Taxes Expense
c. The unadjusted trial balance reports dividends of $3,000. As of December 31, 2011, have these dividends been paid? Explain.
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