(Adjusting Entries and Financial Statements) Presented below are the trial balance and the other information related to Muhammad Ali, a consulting engineer.

1. Fees received in advance from clients $6,900.
2. Services performed for clients that were not recorded by December 31, $4,900.
3. Bad debt expense for the year is $1,430.
4. Insurance expired during the year $480.
5. Furniture and equipment is being depreciated at 12 1/2% per year.
6. Muhammad Ali gave the bank a 90-day, 10% note for $7,200 on December 1, 2005.
7. Rent of the building is $750 per month. The rent for 2005 has been paid, as has that for January 2006.
8. Office salaries earned but unpaid December 31, 2005, $2,510.
Instructions

(a) From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2005.

(b) Prepare an income statement for 2005, a balance sheet, and a statement of owner’s equity. Muhammad Ali withdrew $17,000 cash for personal use during the year.

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MUHAMMAD ALI, CONSULTING ENGINEER TRIAL BALANCE DECEMBER 31, 2005 Cash Accounts Receivable Allowance for Doubtful Accounts Engineering Supplies Inventory Unexpired Insurance Furniture and Equipment Accumulated Depreciation-Furniture and Equipment Notes Payable Muhammad Ali, Capital Service Revenue Rent Expense Office Salaries Expense Heat, Light, and Water Expense Miscellaneous Office Expense Debit Credit $ 31,500 49,600 $ 750 1,960 1,100 25,000 6,250 7,200 35,010 100,000 9,750 28,500 1,080 720 $149,210 $149,210