Khanna Advertising Agency was founded by Matt Khanna in January 2002.

Presented here are both the adjusted and unadjusted trial balances as of December 31, 2007.

KHANNA ADVERTISING AGENCY Trial Balance December 31, 2007 Unadjusted Adjusted _ Dr {te Dr. Cr.

Cash $ 11,000 $ 11,000 Accounts Receivable 16,000 19,500 Art Supplies 8,400 6,000 Prepaid Insurance 3,350 1,790 Printing Equipment 60,000 60,000 Accumulated Depreciation $ 25,000 $ 30,000 Accounts Payable 2,000 2,000 Interest Payable 0 320 Notes Payable 8,000 8,000 Unearned Advertising Revenue 4,000 3,600 Salaries Payable 0 1,300 Common Stock 20,000 20,000 Retained Earnings 5,500 5,500 Dividends 10,000 10,000 Advertising Revenue 57,600 61,500 Salaries Expense 9,000 10,300 Insurance Expense 1,560 Interest Expense 320 Problems: Set B 207 Unadjusted Adjusted Dr. Cr. Dr. Cr.

Depreciation Expense 5,000 Art Supplies Expense 2,400 Rent Expense 4,350 4,350

$122,100 $122,100 $132,220 $132,220 Instructions

(a) Journalize the annual adjusting entries that were made.

(b) Prepare an income statement and a retained earnings statement for the year ended =

(b) Net income $37,570 December 31, and a classified balance sheet at December 31. Tot. assets $68,290

(c) Identify which accounts should be closed on December 31.

(d) If the note has been outstanding 6 months, what is the annual interest rate on that note?

(e) If the company paid $10,500 in salaries in 2007, what was the balance in Salaries Payable on December 31, 2006?