Use of Account Balances as a Basis for Adjustments Lewis and Associates has been in the termite inspection and treatment business for fi ve years. The following is a list of accounts for Lewis on June 30, 2010. It refl ects the recurring transactions for the month of June but does not refl ect any month-end adjustments.

Cash $ 6,200 Accounts Receivable 10,400 Prepaid Rent 4,400 Chemical Inventory 9,400 Equipment 18,200 Accumulated Depreciation 1,050 Accounts Payable 1,180 Capital Stock 5,000 Retained Earnings 25,370 Treatment Revenue 40,600 Wages and Salary Expense 22,500 Utilities Expense 1,240 Advertising Expense 860.

The following additional information is available:

a. Lewis rents a warehouse with offi ce space and prepays the annual rent of $4,800 on May 1 of each year.

b. The asset account Equipment represents the cost of treatment equipment, which has an estimated useful life of ten years and an estimated salvage value of $200.

c. Chemical inventory on hand equals $1,300.

d. Wages and salaries owed but unpaid to employees at the end of the month amount to $1,080.

e. Lewis accrues income taxes using an estimated tax rate equal to 30% of the income for the month.
Required 1. For each of the items of additional information,

(a) through (e), identify and analyze the necessary adjustment on June 30, 2010.
2. On the basis of the information you have, does Lewis appear to be a profi table business? Explain your answer.AppendixLO1