II. Apply the accrual basis of accounting to correctly create adjusting entries in the preparation of financial statements:

A. Step Five: Prepare the unadjusted trial balance. Note that you should use the T account balances completed in the previous step to prepare the unadjusted trial balance portion of the Trial Balance tab in your workbook.

B. Step Six: Complete the Adjusting Entries tab in your workbook using the Step Six data in the appendix. Note that you should take the adjusting entries from this worksheet and enter them into the Trial Balance tab in your workbook.

C. Step Seven: Apply adjusting entries to create the adjusted trial balance. Note that the adjusting entries from Step Six will apply to affected accounts in the unadjusted trial balance to arrive at the adjusted trial balance.

Step Six Data (Click on the link to return to the prompt.) On September 30, the following adjustments must be made:

[Note: This is a sample.] Depreciation of baking equipment transferred to company on 7/13. Assume a half month of depreciation in July using the straight-line method.

Accrue interest for note payable. Assume a full month of interest for July. (6% annual interest on $10,000 loan from parents.)

Record insurance used for the year.

Actual baking supplies on-hand as of September 30 are $1,100.

Office supplies on-hand as of September 30 are $50.

Adjusting entries Debit Credit Peyton Approved Trial Balance 2018 Unadjusted trial balance Debit Credit 32,486.75 18,500.00 132.25 1,500.00 2,400.00 6,000.00 Adjusted trial balance Debit Credit 32,486.75 18,500.00 132.25 1,500.00 2,400.00 6,000.00 250.00 600.00 7,700.00 10,000.00 250.00 600.00 7,700.00 10,000.00 5,000.00 480.00 16,000.00 5,000.00 480.00 16,000.00 Account Cash Baking Supplies Merchandise Inventory (FIFO) Prepaid Rent Prepaid Insurance Baking Equipment Accumulated Depreciation Office Supplies Accounts Receivable Notes Payable Interest Payable Accounts Payable Wages Payable Common Stock Dividends Bakery Sales Merchandise Sales Baking Supplies Expense Rent Expense Interest Expense Insurance Expense Depreciation Expense Misc. Expense Office Supplies Expense Business License Expense Advertising Expense Wages Expense Telephone Expense COGS (FIFO) 10,000.00 10,000.00 55,000.00 221.00 55,000.00 221.00 4,500.00 4,500.00 250.00 250.00 250.00 250.00 375.00 200.00 1,956.00 150.00 157.60 375.00 200.00 1,956.00 150.00 157.60 Total: (FIFO) 86,907.60 86,701.00 250.00 250.00 87,157.60 86,951.00 Peyton Approved Adjusting Journal Entries 2018 Credit Date Accounts 30-Sep Depreciation Expense accumulated depreciation Debit 250 250.00 30-Sep Interest Expense Interest Payable 30-Sep Insurance Expense Prepaid Insurance 30-Sep Baking Supplies Expense Baking Supplies 30-Sep Office Supplies Expense Office Supplies 250.00 250.00