Adjustments and Financial Statements The following account balances are available for Tenfour Trucking Company on January 31, 2010:

Cash $ 27,340 Accounts Receivable 41,500 Prepaid Insurance 18,000 Warehouse 40,000 Accumulated Depreciation—Warehouse 21,600 Truck Fleet 240,000 Accumulated Depreciation—Truck Fleet 112,500.

Land $ 20,000 Accounts Payable 32,880 Notes Payable 50,000 Interest Payable 4,500 Customer Deposits 6,000 Capital Stock 100,000 Retained Earnings 40,470 Freight Revenue 165,670 Gas and Oil Expense 57,330 Maintenance Expense 26,400 Wage and Salary Expense 43,050 Dividends 20,000 Required 1. Identify and analyze the necessary adjustments at January 31, 2010, for each of the following:

a. Prepaid insurance represents the cost of a 24-month policy purchased on January 1, 2010.

b. The warehouse has an estimated useful life of 20 years and an estimated salvage value of $4,000.

c. The truck fl eet has an estimated useful life of six years and an estimated salvage value of $15,000.

d. The promissory note was signed on January 1, 2009. Interest at an annual rate of 9% and the principal of $50,000 are due on December 31, 2010.

e. The customer deposits represent amounts paid in advance by new customers.
A total of $4,500 of the balance in Customer Deposits was earned during January 2010.

f. Wages and salaries earned by employees at the end of January but not yet paid amount to $8,200.
g. Income taxes are accrued at a rate of 30% at the end of each month.
2. Prepare in good form the following fi nancial statements:

a. Income statement for the month ended January 31, 2010

b. Statement of retained earnings for the month ended January 31, 2010

c. Balance sheet at January 31, 2010 3. Compute Tenfour’s current ratio. What does this ratio tell you about the company’s liquidity?
4. Compute Tenfour’s profi t margin. What does this ratio tell you about the company’s profi tability?AppendixLO1