Record adjustments and prepare income statement. (LO 1, 2, 3, 4)

Selected amounts (at December 31, 2007) from Soul Tan, Polish \& Refine Inc.'s information system appear as follows:

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a. There are five adjustments that need to be made before the financial statements can be prepared at year-end. For each, show the adjustment in the accounting equation.
1. The equipment (purchased on January 1,2007 ) has a useful life of 12 years with no salvage value. (An equal amount of depreciation is taken each year.)
2. Interest accrued on the notes payable is \(\$ 1,000\) as of December 31, 2007.
3. Unexpired insurance at December 31, 2007, is \(\$ 7,000\).
4. The rent payment of \(\$ 140,000\) covered the 4 months from December 1 , 2007, through March 31, 2008.
5. Employees had earned salaries and wages of \(\$ 28,000\) that were unpaid at December 31, 2007.

b. Prepare an income statement for the year ended December 31, 2007, for Soul Tan, Polish \& Refine Inc.

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1. Cash paid employees for salaries and wages 2. Cash collected from customers for service rendered 3. Long-term notes payable 4. Cash 5. Common stock 6. Equipment 7. Prepaid insurance 8. Inventory 9. Prepaid rent 10. Retained earnings 11. Salaries and wages expense 12. Service revenues $ 300,000 1,850,000 500,000 150,000 60,000 840,000 30,000 250,000 140,000 130,000 328,000 2,000,000