One year ago, Campbell Conwell founded Conwell Consignment Sales Company, and the business has prospered. Conwell comes to you for advice. She wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has moved. The accounts at December 31, 20XX, follow below:

T-Accounts-1 (1).png These T-Accounts are not in proper order according to assets, liabilities, and stockholders' equity.

Conwell indicates that, at year-end, customers owe the business $1,000 accrued service revenue, which the business expects to collect early next year. These revenues have not been recorded.

During the year, the business collected $4,100 service revenue in advance from customers (think unearned revenue), but the business has earned only $800 of that amount.

During the year Conwell Consignment has incurred $2,400 of advertising expense, but the business has not yet paid for it.

In addition, the business has used up $2,100 of the office supplies. Conwell determines that depreciation on equipment was $7,000 for the year.

On December 31, 20XX, the business owes its employee $1,200 accrued salary.

To get a loan to expand the business, Conwell must show the bank that the businesss stockholders equity has grown from its original $40,000 balance. Has it? You and Conwell agree that you will meet again in one week.

Requirements

1. Put the T-Accounts in proper order. Then make the adjustments for each of the accounts discussed. Prepare the adjusted trial balance.

2. Prepare an income statement that includes all of the above adjustments and a statement of retained earnings.

3. Can Conwell expect to get the loan? Give your reason(s).

\begin{tabular}{l} \multicolumn{2}{c}{ Cash } \\ \hline Bal. 5,800 \\ \multicolumn{2}{c}{ Equipment } \\ \hline Bal. 52,000 \\ Salaries Payable \\ \hline \multicolumn{2}{c}{ Service Revenue } \\ \hline \end{tabular} Advertising Expense \begin{tabular}{l} Unearned Revenue \\ \hline 4,100 Bal. \end{tabular} \begin{tabular}{l} \multicolumn{2}{c}{ Utilities Expense } \\ \hline Bal. 800 \end{tabular} \begin{tabular}{l} \multicolumn{2}{c}{ Prepaid Rent } \\ \hline Bal. 2,800 \end{tabular} \begin{tabular}{c} Common Stock \\ \hline 40,000 Bal. \end{tabular} \begin{tabular}{c} \multicolumn{2}{c}{ Salaries Expense } \\ \hline Bal. 17,000 \end{tabular} Supplies Expense