Bob Reynolds operates a real estate business. A list of accounts on April 30, 2012, before any adjustments are recorded, appears as follows:

Cash.......................................................................$15,700

Prepaid Insurance............................................................450

Office Supplies...............................................................250

Office Equipment.........................................................50,000

Accumulated Depreciation-Office Equipment........................5,000

Automobile...................................................................12,000

Accumulated Depreciation-Auto.......................................1,400

Accounts Payable............................................................6,500

Unearned Commissions....................................................9,500

Notes Payable................................................................2,000

Capital Stock...............................................................10,000

Retained Earnings.........................................................40,000

Dividends.....................................................................2,500

Commissions Earned......................................................17,650

Utilities Expense............................................................2,300

Salaries Expense............................................................7,400

Advertising Expense........................................................1,450

Other Data

a. The monthly insurance cost is $50.

b. Office supplies on hand on April 30, 2012, amount to $180.

c. The office equipment was purchased on April 1, 2011. On that date, it had an estimated useful life of ten years.

d. On September 1, 2011, the automobile was purchased; it had an estimated useful life of five years.

e. A deposit is received in advance of providing any services for first-time customers. Amounts received in advance are recorded initially in the account Unearned Commissions. Based on services provided to these first-time customers, the balance in this account at the end of April should be $5,000.

f. Repeat customers are allowed to pay for services one month after the date of the sale of their property. Services rendered during the month but not yet collected or billed to these customers amount to $1,500.

g. Interest owed on the note payable but not yet paid amounts to $20.

h. Salaries owed but unpaid to employees at the end of the month amount to $2,500.

Required

1. For each of the items of other data (a) through (h), identify and analyze the adjustment necessary on April 30, 2012.

2. Compute the net increase or decrease in net income for the month from the recognition of the adjustments in (1). (Ignore income taxes.)

3. Note the balance in Accumulated Depreciation-Office Equipment of $5,000. Explain why the account contains a balance of $5,000 on April 30, 2012.