Below is the trial balance of West Ltd. at December 31, 2020

West Ltd.

Trial Balance

December 31, 2020

Account	Debit	Credit
Cash	$ 50,000
Accounts Receivable	20,000
Prepaid Insurance	4,800
Supplies	4,000
Equipment	48,000
Accumulated Depreciation- Equipment		$ 4,000
Notes Payable		4,400
Unearned revenue		3,000
Share Capital- Ordinary		72,400
Dividends	2,000
Retained Earnings		25,000
Service Revenue		40,000
Salaries expense	10,000
Rent expense	6,000
Utilities expense	4,000
Total	$ 148,800	$ 148,800

Other data:

1. Supplies on hand at December 31 are $1,000.

2. Accrued Salaries at the end of the December of $2,500 were neither recorded nor paid.

3. The insurance policy was purchased on December 1, 2020 and is for a year.

4. $2,000 of unearned service revenue is recognized for services performed at the end of the month.

5. The interest accrued but not yet recorded or paid on the note payable is $300 for the month of December.

6. The equipment has a 10-year period with no residual value. It is being depreciated at $400 per month.

7. Invoices representing $6,000 of services performed during the month have not been recorded as of December 31.

Instructions:

2. Prepare the adjusting entries for the month of December.

3. If each of the above adjustments was not made, show the effect on net income, shareholders equity, assets and liabilities accordingly, by forming a table as shown:

Solution:

Adjustment no.	Type of adjustment	Net income	Equity	Assets	Liabilities
1.
2.
3.
4.
5.
6.
7.

Use the terms Overstated and Understated.

Use N/A for any item that wont be affected by the adjustment.

4. Post the adjusting entries
6. Prepare an adjusted trial balance
8. After preparing the adjusted trial balance, prepare the necessary closing entries on December 31, 2020.
10. Post the closing entries

8. Prepare the Post-Closing Trial Balance