Ken Hensley Enterprises, Inc., is a small recording studio in St. Louis. Rock bands use the studio to mix high-quality demo recordings distributed to talent agents. New clients are required to pay in advance for studio services. Bands with established credit are billed for studio services at the end of each month. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31, year 1, follows. (Bear in mind that adjusting entries already have been made for the first 11 months of year 1, but not for December.)

KEN HENSLEY ENTERPRISES, INC. Unadjusted Trial Balance December 31, Year 1
Cash	$	51,804
Accounts receivable		97,680
Studio supplies		9,120
Unexpired insurance		600
Prepaid studio rent		4,800
Recording equipment		108,000
Accumulated depreciation: recording equipment				$	63,000
Notes payable					19,200
Interest payable					1,008
Income taxes payable					3,840
Unearned studio revenue					11,520
Capital stock					96,000
Retained earnings					45,600
Studio revenue earned					128,400
Salaries expense		21,600
Supplies expense		1,440
Insurance expense		3,216
Depreciation expense: recording equipment		19,800
Studio rent expense		25,200
Interest expense		1,008
Utilities expense		2,820
Income taxes expense		21,480
	$	368,568		$	368,568

Other Data

1. Records show that $5,280 in studio revenue had not yet been billed or recorded as of December 31.
2. Studio supplies on hand at December 31 amount to $8,280.
3. On August 1, year 1, the studio purchased a six-month insurance policy for $1,800. The entire premium was initially debited to Unexpired Insurance.
4. The studio is located in a rented building. On November 1, year 1, the studio paid $7,200 rent in advance for November, December, and January. The entire amount was debited to Prepaid Studio Rent.
5. The useful life of the studios recording equipment is estimated to be five years (or 60 months). The straight-line method of depreciation is used.
6. On May 1, year 1, the studio borrowed $19,200 by signing a 12-month, 9 percent note payable to First Federal Bank of St. Louis. The entire $19,200 plus 12 months interest is due in full on April 30, year 2.
7. Records show that $4,320 of cash receipts originally recorded as Unearned Studio Revenue had been earned as of December 31.
8. Salaries earned by recording technicians that remain unpaid at December 31 amount to $648.
9. The studios accountant estimates that income taxes expense for the entire year ended December 31, year 1, is $23,520. (Note that $21,480 of this amount has already been recorded.)

Required:

a. For each of the above numbered paragraphs, prepare the necessary adjusting entry.

b. Using figures from the companys unadjusted trial balance in conjunction with the adjusting entries made in part a, compute net income for the year ended December 31, year 1.

c. Was the studios monthly rent for the last 2 months of year 1 more or less than during the first 10 months of the year?

d. Was the studios monthly insurance expense for the last five months of year 1 more or less than the average monthly expense for the first seven months of the year?

e. If the studio purchased all of its equipment when it first began operations, for how many months has it been in business?

f. Indicate the effect of each adjusting entry prepared in part a on the major elements of the companys income statement and balance sheet. Organize your answer in tabular form using the column headings shown. Use the symbols I for increase, D for decrease, and NE for no effect. The answer for the adjusting entry number 1 is provided as an example.