Use of Account Balances as a Basis for Adjustments Bob Reynolds operates a real estate business. A list of accounts on April 30, 2010, before any adjustments are recorded, appears as follows:

List of Accounts Cash $15,700 Prepaid Insurance 450 Offi ce Supplies 250 Offi ce Equipment 50,000 Accumulated Depreciation—Offi ce Equipment 5,000 Automobile 12,000 Accumulated Depreciation—Automobile 1,400 Accounts Payable 6,500 Unearned Commissions 9,500 Notes Payable 2,000 Capital Stock 10,000 Retained Earnings 40,000 Dividends 2,500 Commissions Earned 17,650 Utilities Expense 2,300 Salaries Expense 7,400 Advertising Expense 1,450 Other Data

a. The monthly insurance cost is $50.

b. Offi ce supplies on hand on April 30, 2010, amount to $180.

c. The offi ce equipment was purchased on April 1, 2009. On that date, it had an estimated useful life of ten years.

d. On September 1, 2009, the automobile was purchased; it had an estimated useful life of fi ve years.

e. A deposit is received in advance of providing any services for fi rst-time customers.
Amounts received in advance are recorded initially in the account Unearned Commissions. Based on services provided to these fi rst-time customers, the balance in this account at the end of April should be $5,000.

f. Repeat customers are allowed to pay for services one month after the date of the sale of their property. Services rendered during the month but not yet collected or billed to these customers amount to $1,500.
g. Interest owed on the note payable but not yet paid amounts to $20.
h. Salaries owed but unpaid to employees at the end of the month amount to $2,500.
Required 1. For each of the items of other data

(a) through (h), identify and analyze the adjustment necessary on April 30, 2010.
2. Compute the net increase or decrease in net income for the month from the recognition of the adjustments in (1). (Ignore income taxes.)
3. Note the balance in Accumulated Depreciation—Offi ce Equipment of $5,000.
Explain why the account contains a balance of $5,000 on April 30, 2010.AppendixLO1