Determining Adjustments

Question

Determining Adjustments . At the end of the first three months of operation, Kubose Answering Service, Inc.' s trial balance appears as follows. Kubose has hired an accountant to prepare financial statements to determine how well the company is doing after three months. Upon examining the accounting records, the accountant finds the following items of interest: a. An inventory of office supplies reveals supplies on hand of $ 133. b. The Prepaid Rent account includes the rent for the first three months plus a deposit for April's rent. c. Depreciation on the equipment for the first three months is $ 208. d. The balance of the Unearned Answering Service Revenue account represents a 12- month service contract paid in advance on February 1. e. On March 31, accrued wages total $ 80. f. Federal income taxes for the three months are estimated to be $ 980.

Kubose Answering Service, Inc. Trial Balance March 31, 2014 Cash 3,482 Accounts Receivable 4,236 Office Supplies 903 Prepaid Rent 800 Equipment 4,700 Accounts Payable 2,673 Unearned Answering Service Revenue 888 Common Stock 5,933 Dividends 2,130 Answering Service Revenue 9,002 Wages Expense 1,900 Office Cleaning Expense 345 18,496 18,496

 

Required

All adjustments affect one balance sheet account and one income statement account. For each of these situations, show the accounts affected, the amount of the adjustment ( using a + or - to indicate an increase or decrease), and the balance of the account after the adjustment in the following format: Balance Sheet Account Amount of Adjustment (+ or -) Balance After Adjustment Income Statement Account Amount of Adjustment (+ or -) Balance After Adjustment.

Answer 1

An inventory of office supplies reveals supplies on hand of $ 133.

This means that the expenses are overstated by 133 and inventory is understated by 133. So adjustment would be to reduce the office supplies of 903 by 133 and add an inventory of office supplies in the Balance sheet by 133. 

 

b. The Prepaid Rent account includes the rent for the first three months plus a deposit for April's rent.

 

This should mean that the 800 is four months of rent, so take 600 to the Rent Account as an Expense and reduce that from the Balance Sheet account of Prepaid Rent. 

 

c. Depreciation on the equipment for the first three months is $ 208.

Simple one... 

 

d. The balance of the Unearned Answering Service Revenue account represents a 12- month service contract paid in advance on February 1.

This means that 888 is for 12 months and the amount for Feb and March should be taken to Revenue and only the balance remains in this account. So 888/12 is the monthly revenue. 148 is for two months. Take that to Revenue by adding that to Income and deduct 148 from 888. 

 

e. On March 31, accrued wages total $ 80. f. Federal income taxes for the three months are estimated to be $ 980.

Simple stuff..