Emily reviews the updated trial balance prepared in Chapter 3. She recalls from her introductory accounting class that there are some adjustments that need to be prepared. She gathers up as much information as she can to enable the following adjusting journal entries to be prepared on June 30, 2017, ABC's year end. ABC prepares adjusting entries annually.
1. A count reveals that $600 worth of advertising brochures, recorded in the Supplies account, have been distributed during the month of June.
2. Depreciation, using the straight-line method, is to be recorded on the building for the year. The building was purchased 26 years ago for $165,000 and has an estimated useful life of 30 years. In addition, depreciation of $7,070 is to be recorded on the equipment with a cost of $44,520 for the year. Depreciation of $4,200 is also to be recorded on the company car, recorded in the Vehicles account, for the year. The company car was purchased on January 2 of the current year for $52,500 and no depreciation has been recorded to date.
3. Interest on the bank loan and mortgage payable was last paid on June 25. Interest accrued on the remaining days in the month of June is $50.
Six months' worth of the prepaid insurance has expired. This insurance policy was purchased on January 2 for an annual cost of $12,000.
5. At the end of June, electricity on the building, $1,025, was owed and due to be paid by July 14.
6. During the last week of June, an unexpected and urgent request for support services was received from Software Solutions. The services were provided and an invoice was prepared for $1,600. This invoice was not included in the accounting records at June 30.
7. Salaries for employees were paid on June 30. There were also two part-time employees who provided additional services to assist ABC in completing the Software Solutions job the last week of June; however, they did not submit their timesheets for that week until the first week of July. They each worked 20 hours and are to be paid $25/hour on the next payday.
8. An additional $5,000 of corporate income tax is estimated to be owed at June 30.
Instructions
(a) Prepare the adjusting journal entries required at June 30.
(b) Post the adjusting journal entries prepared in part CT4.6 (a) to the T accounts updated in CT3-6 in Chapter 3.
(c) Prepare an adjusted trial balance at June 30, 2017.
(d) Calculate the amount of net income ABC would report for the year ended June 30. How does this amount compare with the cash the company reports at June 30?