The unadjusted trial balance of The Rock Industries Ltd. at January 31, 2020, appears below.

Adjustment data:

a. Accrued service revenue at January \(31, \$ 2,000\)

b. Prepaid rent expired during the month. The unadjusted prepaid balance of \(\$ 3,000\) relates to the period January through March.

c. Supplies used during January, \(\$ 2,000\)

d. Depreciation on furniture for the month. The estimated useful life of the furniture is three years.

e. Accrued salary expense at January 31 for Monday, Tuesday, and Wednesday. The five-day weekly payroll of \(\$ 5,000\) will be paid on Friday, February 2.

Requirements

1. Using Exhibit 3-5, as an example, prepare the adjusted trial balance of The Rock Industries Ltd. at January 31, 2020. Key each adjusting entry by letter.
2. Prepare the income statement, the statement of retained earnings, and the classified balance sheet. Draw arrows linking the three financial statements.

3.

a. Compare the business's net income for January to the amount of dividends paid to the owners. Suppose this trend continues into February. What will be the effect on the business's financial position, as shown by its accounting equation?

b. Will the trend make it easier or more difficult for Rock Industries to borrow money if the business gets in a bind and needs cash? Why?

c. Does either the current ratio or the cash position suggest the need for immediate borrowing? Explain.

Transcribed Image Text:

A The Rock Industries Ltd. Trial Balance January 31, 2020 B C D 2 Cash $ 8,000. 3 Accounts receivable 10,000 4 Prepaid rent 3,000 5 Supplies 2,000 6 Furniture 36,000 7 8 Accumulated depreciation Accounts payable $ 3,000 10,000 9 Salary payable 10 Share capital 26,000 11 Retained earnings (December 31, 2019) 13,000 12 Dividends 4,000 13 Service revenue 14,000 14 Salary expense 2,000 15 Rent expense 16 Utilities expense 1,000 17 Depreciation expense 18 Supplies expense 19 Total $ 66,000 $ 66,000 20