Mostert Inc. a small service company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as at the end of the company's fiscal year, December 31, 2011.

Data not yet recorded at December 31, 2011, included:

a. The supplies inventory on December 31,2011 , reflected \(\$ 200\) remaining on hand.

b. Insurance expired during \(2011, \$ 400\).

c. Depreciation expense for \(2011, \$ 4,000\).

d. Wages earned by employees not yet paid on December \(31,2011, \$ 1,100\).

e. Income tax expense of \(\$ 7,350\).

Required:
1. Prepare the adjusting entries at December 31, 2011.
2. Show the effects (direction and amount) of the adjusting entries on profit and cash.
3. Prepare an income statement for 2011 and a statement of financial position at December 31 , 2011 , including the effects of the preceding five transactions.
4. Assume that you forgot to adjust the balance of the service supplies inventory account. How would this error affect the amount of profit for the year? Does this error lead to a material effect on profit? Explain.
5. Prepare the closing entries at December 31, 2011.

Transcribed Image Text:

Account Titles Cash Debit Credit 60,000 Trade receivables 13,000 Service supplies inventory 800 Prepaid insurance 1,000 Service trucks (5-year life, no resicual value) 20,000 Accumulated cepreciation, service trucks 12,000 Other assets 11,200 Trade payables 3,000 Note payable (3 years; 10% each December 31) 20,000 Share capital (5,000 shares outstanding) 28,200 Retained earnings 7,500 Service revenue 77,000 Other expenses, excluding income tax 41,700 Totals 147,700 147,700