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Problem: M&S started business operations from June 1, 2019. Its trial balance before adjustment on June
30 is as follows:
M&S
Trial Balance
June 30, 2019
Debit ($) Credit ($)
Cash 7,800
Supplies 13,300
Land 81,000
Buildings 138,000
Equipment 16,800
Fixtures and Furnitures 6,000
Prepaid Insurance 4,200
Prepaid Annual Rent 10,800
Accounts Receivable 5,000
Accounts Payable 7,200
Owner’s Capital 196,000
Owner’s Drawings 17,000
Notes Payable 40,000
Unearned Revenue 5,400
Revenue 78,000
Salaries and Wages Expense 21,600
Advertising Expense 4,300
Heat and Electricity Expense 800
_________ ________
326,600 326,600
After analyzing each account of the trial balance, the following data were revealed:
1. Prepaid insurance is 24-month (2 years) policy starting June 1, 2019.
2. Prepaid annual rent was paid for the year starting June 1, 2019.
3. An inventory count at the end of the month revealed $1,300 of unused supplies.
4. Annual Depreciation: Building $5,520; Equipment $3,360; Fixtures and Furnitures $1,200.
5. M&S received cash $2,700 from previously billed customers.
6. M&S earned $4,700 of services out of the total unearned revenue.
7. M&S took out a 3-year note payable on June 1, 2019 which requires the company to pay interest at an
annual rate of 12%. The interest payment is yet to be made.
8. Additional advertising expense of $550 are accrued and unpaid.
9. M&S pays its staff wages of $720, every 10-calendar days. The last salary and wage payment were made
on June 25, 2019. The next payment is due on July 5, 2019.
10. On the last day of June, M&S earned $400 for services performed but that had not been recorded yet.
Required:
i. Journalize the adjusting entry described above.
ii. Prepare adjusted trial balance after considering the adjustment data provided above.
iii. Prepare Income Statement for the month ending June 30, 2019.
iv. Prepare Owner’s Equity Statement for the month ending June 30, 2019.
v. Prepare classified Balance Sheet as at June 30, 2019.
Note: Use figures from the adjusted trial balance to prepare income statement, owner’s equity statement
and classified balance sheet.
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Solution:
i.
M&S
Adjusting Journal Entries
Date Account Titles Debit ($) Credit ($)
June 30 Insurance Expense Dr.
Prepaid Insurance Cr.
175
175
June 30 Rent Expense Dr.
Prepaid Annual Rent Cr.
900
900
June 30 Supplies Expense Dr.
Supplies Cr.
12,000
12,000
June 30 Depreciation Expense Dr.
Accumulated depreciation-Building Cr.
460
460
June 30 Depreciation expense Dr.
Accumulated Depreciation-Equipment Cr.
280
280
June 30 Depreciation expense Dr.
Accumulated Depreciation-Fixtures & Fermetures Cr.
100
100
June 30 Cash Dr.
Accounts Receivable Cr.
2,700
2,700
June 30 Unearned Service Revenue Dr.
Service Revenue/Sales Cr.
4,700
4,700
June 30 Interest Expense Dr.
Interest Payable Cr.
400
400
June 30 Advertising expense Dr.
Accounts Payable Cr.
550
550
June 30 Salaries and Wages expense Dr.
Salaries and Wages Payable Cr.
360
360
June 30 Accounts Receivable Dr.
Sales/service Revenue Cr.
400
400
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ii.
M&S
Adjusted Trial Balance
June 30,2019
Accounts Title Debit ($) Credit ($)
Cash 10,500
Supplies 1,300
Land 81,000
Equipment 16,800
Building 138,000
Fixtures & Furnitures 6,000
Prepaid Insurance 4,025
Prepaid Annual Rent 9,900
Accounts receivable 2,700
Accounts Payable 7,750
Owner’s Capital 196,000
Owner’s Drawings 17,000
Notes Payable 40,000
Unearned Service Revenue 700
Sales/Service Revenue 83,100
Salary and Wages Expense 21,960
Heat and Electricity Expense 800
Advertising Expense 4,850
Rent Expense 900
Supply Expense 12,000
Depreciation Expense 840
Accumulated Depreciation Expense 840
Interest Expense 400
Interest Payable 400
Salaries and Wages Payable 360
Insurance Expense 175
329,150 329,150
Total Trial Balance = 329,150$
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iii.
M&S
Income Statement
June 30, 2019
Revenues: Amount ($) Amount ($)
Sales/Service Revenue 83,100
LESS: Expenses:
Salary and Wage Expense (21,960)
Heat and Electricity expense (800)
Advertising Expense (4,850)
Insurance expense (175)
Rent expense ( 900)
Supplies expense (12,000)
Depreciation expense (840)
Interest Expense (400)
Total Expenses (41,925)
Net Income/Profit 41,175
iv.
M&S
Owner’s Equity Statement
June 30, 2019
Capital June 1: Amount ($) Amount($)
Add: Investments/Owner’s Capital 196,000
Net Income/ Profit 41,175
237,175
Less: Drawings (17,000)
Owner’s Equity June 30 220,175
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v.
M&S
Balance Sheet Statement
June 30,2019
Assets
Non-Current Assets: Amount ($)
Equipment 16,800
Less: Accumulated depreciation-equipment (280)
Land 81,000
Building 138,000
Less: Accumulated depreciation-building (460)
Furnitures 6,000
Less: Accumulated depreciation-Furnitures (100)
Current Assets:
Cash 10,500
Accounts Receivables 2,700
Supplies 1,300
Prepaid Insurance 4,025
Prepaid Annual Rent 9,900
Total Assets 2,69,385
Liabilities and Owner’s Equity
Liabilities: Amount ($)
Accounts Payable 7,750
Note Payable 40,000
Unearned Service Revenue 700
Interest Payable 400
Salaries and Wages Payable 360
Total Liabilities 49,210
Owner’s Equity:
Owner’s Capital June 30 220,175
Total Liabilities and Owner’s Equity 2,69,385
