Costello Advertising Agency Inc. was founded by John Costello in January of 2005. Presented below are both the adjusted and unadjusted trial balances as of December 31. 2005.

Instructions

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

(b) Prepare an income statement and a retained earnings statement for the year ending December 31, 2005, and a balance sheet at December 31.

(c) Answer the following questions.
(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2) If the company paid $14,500 in salaries in 2006. what was the balance in Salaries Payable on December 31. 2005?

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COSTELLO ADVERTISING AGENCY INC. Trial Balance December 31, 2005 Unadjusted Adjusted Dr. Cr. Dr. Cr. Cash Accounts Receivable Art Supplies Prepaid Insurance Printing Equipment Accumulated Depreciation $ 11.000 20,000 $ 11.000 23.500 8,600 5,000 3.350 2.500 60,000 60,000 $ 28,000 $ 33,000 Accounts Payable 5.000 5,000 Interest Payable -0- 150 Notes Payable 5.000 5.000 Unearned Advertising Fees 7.200 5.600 Salaries Payable -0- 1.300 Common Stock 20.000 20,000 Retained Earnings 5,500 5.500 Dividends 12.000 12,000 Advertising Revenue 58,600 63.700 Salaries Expense 10,000 11.300 Insurance Expense 850 Interest Expense 350 500 Depreciation Expense 5,000 Art Supplies Expense 3.600 Rent Expense 4,000 4.000 $129.300 $129.300 $139.250 $139.250