(Adjusting Entries and Financial Statements) Ana Alicia Advertising Corporation was founded by Ana Alicia in January 2001. Presented on the next page 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 statement of retained earnings for the year ending December 31, 2005, and a balance sheet at December 31.

(c) Answer the following questions.
(1) If the useful life of equipment is 8 years, what is the expected salvage value?
(2) If the note has been outstanding 3 months, what is the annual interest rate on that note?
(3) If the company paid $12,500 in salaries in 2005, what was the balance in Salaries Payable on December 31, 2004?

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ANA ALICIA ADVERTISING CORPORATION TRIAL BALANCE DECEMBER 31, 2005 Unadjusted Adjusted Dr. Cr. Dr. Cr. Cash Accounts Receivable Art Supplies Prepaid Insurance Printing Equipment Accumulated Depreciation $ 7,000 $ 7,000 19,000 22,000 8,500 5,500 3,250 2,500 60,000 60,000 Accounts Payable Interest Payable $ 27,000 5,000 $ 33,750 5,000 150 Notes Payable Unearned Service Revenue Salaries Payable 5,000 5,000 7,000 5,600 1,500 Common Stock 10,000 10,000 Retained Earnings Service Revenue 4,500 4,500 58,600 63,000 Salaries Expense 10,000 11,500 Insurance Expense 750 Interest Expense 350 500 Depreciation Expense 6,750 Art Supplies Expense 5,000 8,000 Rent Expense 4,000 4,000 $117,100 $117,100 $128,500 $128,500