Costello Advertising Agency Inc. was founded by Pat Costello in January of 2013.

financial statements. Presented on the next page are both the adjusted and unadjusted trial balances as of

(LO 5, 6, 7) December 31, 2014.

Instructions

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

(b) Net income $38,450

(b) Prepare an income statement and a retained earnings statement for the year ending Ending retained earnings December 31, 2014, and a balance sheet at December 31.

$31,950

(c) Answer the following questions.

Total assets $69,000 (1) If the note has been outstanding 6 months, what is the annual interest rate on that

(c) (1) 6% note? (2) $4,500 (2) If the company paid $14,500 in salaries in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013?

Costello Advertising Agency, Inc.
Trial Balance December 31, 2014 Unadjusted Adjusted Dr. Cr. Dr. Cr.
Cash $11,000 $11,000 Accounts Receivable 20,000 23,500 Supplies 8,600 5,000 Prepaid Insurance 3,350 2,500 Equipment 60,000 60,000 Accumulated Depreciation—Equipment $ 28,000 $ 33,000 Accounts Payable 5,000 5,000 Interest Payable —0- 150 Notes Payable 5,000 5,000 Unearned Service Revenue 7,200 5,600 Salaries and Wages Payable —0- 1,300 Common Stock 20,000 20,000 Retained Earnings 5,500 5,500 Dividends 12,000 12,000 Service Revenue 58,600 63,700 Salaries and Wages Expense 10,000 11,300 Insurance Expense 850 Interest Expense 350 500 Depreciation Expense 5,000 Supplies Expense 3,600 Rent Expense 4,000 4,000 $129,300 $129,300 $139,250 $139,250