Fernetti Advertising Agency was founded by John Fernetti in January of 2007. Presented below are both the adjusted and unadjusted trial balances as of December 31, 2008.

Instructions

(a) Journalize the annual adjusting entries that were made.

(b) Prepare an income statement and a statement of owner’s equity for the year ending December 31, 2008, and a balance sheet at December 31.

(c) Answer the following questions.

(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?

(2) If the company paid \($12,500\) in salaries in 2008, what was the balance in Salaries Payable on December 31, 2007?

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FERNETTI ADVERTISING AGENCY Trial Balance December 31, 2008 Unadjusted Adjusted Dr. Cr. Dr. Cr. Accounts Payable Cash Accounts Receivable Art Supplies Prepaid Insurance Printing Equipment Accumulated Depreciation Interest Payable $ 11,000 $ 11,000 20,000 22,500 8,600 5,000 3,350 2,500 60,000 60,000 $ 28,000 5,000 $ 34,000 5,000 -0- 150 Notes Payable Unearned Advertising Fees Salaries Payable J. Fernetti, Capital 5,000 5,000 7,200 5,600 -0- 1,300 25,500 25,500 J. Fernetti, Drawing Advertising Revenue Salaries Expense 12,000 12,000 58,600 62,700 10,000 11,300 Insurance Expense 850 Interest Expense 350 500 Depreciation Expense 6,000 Art Supplies Expense 3,600 Rent Expense 4,000 4,000 $129,300 $129,300 $139,250 $139,250