Record adjustments and calculate net income. (LO 1, 2, 3, 4)

The records of Jimenez Electric Company showed the following amounts at December 31, 2007 , before adjustments:

Before Mr. Jimenez prepares the financial statements for his business, adjustments must be made for the following items:
1. The prepaid insurance is for a 12 -month policy purchased on March 1 for cash. The policy is effective from March 1, 2007, to February 28, 2008.
2. A count of the supplies on December 31 revealed \(\$ 400\) worth still on hand.
3. One customer paid for 4 months of service in advance on December 1. By December 31,1 month of the service had been performed.
4. The prepaid rent was for 10 months of rent for the company office building, beginning June 1.
5. The company took out a bank loan on November 1,2007 . The interest rate is \(12 \%\) ( \(1 \%\) per month) for 1 year.
6. As of December 31, the company owed its employees \(\$ 5,000\) for work done in 2007 . The next payday is in January 2008.

\section*{Required}

a. Show the adjustments in the accounting equation.

b. Prepare an income statement for the year ended December 31, 2007, for Jimenez Electric Company.

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Prepaid insurance Supplies Unearned service fees Notes payable Service fees $ 1,500 3,500 4,000 30,000 106,000 Salary expense 65,000 Prepaid rent 3,900 Insurance expense 0 Supplies expense 0 Rent expense 0 Interest expense Interest payable 0 0 Wages payable 0