hayla Green owns Creative Designs. The trial balance of the firm for January 31, 20X1, the first month of operations, is shown below. End-of-the-month adjustments must account for the following items: Supplies were purchased on January 1, 20X1; inventory of supplies on January 31, 20X1, is $1,550. The prepaid advertising contract was signed on January 1, 20X1, and covers a four-month period. The rent of $2,050 expired during the month. Depreciation is computed using the straight-line method. The equipment has an estimated useful life of 10 years with no salvage value.

Required: 1. Complete the worksheet for the month. 2. Prepare an income statement, statement of owners equity, and balance sheet. No additional investments were made by the owner during the month. 3. Journalize and post the adjusting entries.

Analyze

If the adjusting entries had not been made for the month, by what amount would net income be overstated or understated?

\begin{tabular}{|c|c|c|c|c|c|c|c|} \hline & \multicolumn{7}{|c|}{ CREATIVE DESIGNS } \\ \hline & \multicolumn{7}{|c|}{ Worksheet } \\ \hline \multirow{3}{*}{ Account Name } & \multicolumn{7}{|c|}{ Month Ended January 31, 20X1 } \\ \hline & \multicolumn{2}{|c|}{ Trial Balance } & \multicolumn{2}{|c|}{ Adjustments } & \multicolumn{2}{|c|}{ Adjusted Trial Balance } & \multirow{2}{*}{DebitIncome} \\ \hline & Debit & Credit & Debit & Credit & Debit & Credit & \\ \hline Cash & 36,400 & & & & 36,400 & & \\ \hline Accounts receivable & 13,500 & & & & 13,500 & & \\ \hline Supplies & 9,550 & & & 8,000 & 1,550 & & \\ \hline Prepaid advertising & 12,000 & & & & & & \\ \hline Prepaid rent & 24,600 & & & & & & \\ \hline Equipment & 32,400 & & & & & & \\ \hline \multicolumn{8}{|c|}{ Accumulated depreciation-Equipment } \\ \hline Accounts payable & & 16,450 & & & & & \\ \hline Shayla Green, Capital & & 60,900 & & & & & \\ \hline Fees income & & 71,450 & & & & & \\ \hline \multicolumn{8}{|l|}{ Advertising expense } \\ \hline \multicolumn{8}{|l|}{ Depreciation expense-Equipment } \\ \hline \multicolumn{8}{|l|}{ Rent expense } \\ \hline Salaries expense & 10,600 & & & & & & \\ \hline Supplies expense & & & & & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline & \multicolumn{7}{|c|}{ CREATIVE DESIGNS } \\ \hline & \multicolumn{7}{|c|}{ Worksheet } \\ \hline \multirow{3}{*}{ Account Name } & \multicolumn{7}{|c|}{ Month Ended January 31, 20X1 } \\ \hline & \multicolumn{2}{|c|}{ Trial Balance } & \multicolumn{2}{|c|}{ Adjustments } & \multicolumn{2}{|c|}{ Adjusted Trial Balance } & \multirow{2}{*}{DebitIncome} \\ \hline & Debit & Credit & Debit & Credit & Debit & Credit & \\ \hline Cash & 36,400 & & & & 36,400 & & \\ \hline Accounts receivable & 13,500 & & & & 13,500 & & \\ \hline Supplies & 9,550 & & & 8,000 & 1,550 & & \\ \hline Prepaid advertising & 12,000 & & & & & & \\ \hline Prepaid rent & 24,600 & & & & & & \\ \hline Equipment & 32,400 & & & & & & \\ \hline \multicolumn{8}{|c|}{ Accumulated depreciation-Equipment } \\ \hline Accounts payable & & 16,450 & & & & & \\ \hline Shayla Green, Capital & & 60,900 & & & & & \\ \hline Fees income & & 71,450 & & & & & \\ \hline \multicolumn{8}{|l|}{ Advertising expense } \\ \hline \multicolumn{8}{|l|}{ Depreciation expense-Equipment } \\ \hline \multicolumn{8}{|l|}{ Rent expense } \\ \hline Salaries expense & 10,600 & & & & & & \\ \hline Supplies expense & & & & & & & \\ \hline \end{tabular}