Online Consulting Service, a sole trader provides consultation services for businesses that wish to settle up online business. The customers are charged a monthly fee for consultation service.

It adjust its accounts on a monthly basis. You are provided the adjusted trial balance dated December 31, 2017. Adjusting entries have already been made for the first 11 months of 2017, but not for December.

Online Consulting Service, Inc.

Unadjusted trial balance

31 November 2017

	$	$
	DR	CR
Cash	49,100
Consulting fees receivable	23,400
Prepaid office rent	6,300
Prepaid dues and subscriptions	300
Supplies	600
Equipment	36,000
Accumulated depreciation : equipment		10,200
Loan repayable, 2020		17,000
Unearned consulting fees		5,950
Capital		30,000
Account payable		32,700
Consulting fees earned		197,180
Salaries expense	88,820
Telephone expense	2,550
Rent expense	22,000
Income tax expenses	51,000
Dues & subscription expenses	560
Supplies expense	1,600
Depreciation expense: Equipment	6,600
Miscellaneous expenses	4,200
	293,030	293,030

Additional information is available as a source for preparing adjusting entries at 31 December

2017:

i) On 1 December, the enterprise signed a new rental agreement and paid three months rent in

advance at a rate of $2,100 per month. This advance payment was debited to the Prepaid

office rent account.

ii) Dues and subscriptions expiring during December amounted to $50.

iii) An estimate of supplies on hand was made and its estimated cost of unused supplies was

$490.

iv) The useful life of the equipment has been estimated at five years (60 months) from date of

acquisition.

v) Accrued interest on notes payable amounted to $100.

vi) Consulting fees valued at $2,580 were rendered during December to clients who had made

payment in advance.

vii)It is customary for the firm to bill the customers only when the work is completed, at monthly

intervals. At 31 December, consulting services valued at $11,000 had been rendered but not

yet billed, No advance payment had been received from these clients.

ix) Salaries earned by employees but not paid as of December 31 amounted to $1,700.

x) The owner paid for his families holidays using business cash amounted to $4,200. This

amount is recorded as miscellaneous expenses.

Required: to

record the above balances and adjustments into ledger accounts, balance the accounts and close the account by closing entries to income statement and carrying down relevant balances.

Prepare an adjusted trial balance as 31 December 2017 in spread sheet format as shown below:

This spread sheet has to be prepared using Excel or any other software program.

	Unadjusted trial balance as at		Adjustments		Adjusted Trial balance as at
Account	Dr	Cr	Dr	Cr	Dr	Cr

(13)

c) an income statement for the year (20)

d) a balance sheet as at 31 December,2017. (20)

Section B (20 marks)

a) Explain the four accounting principles used in adjusting entries and illustrate using an

example each from the question above. (10)

b) Do a search on the Enron scandal and WorldCom scandal and make a brief summary of

what improper accounting was carried out. (10)