Please make the adjustment entries and prepare trial balance and then income statement. Thank you
LO4-1 through LO4-7, Ken Hensley Enterprises, Inc., is a small recording studio in St. Louis. Rock bands use the studio LO4-9 to mix high-quality demo recordings distributed to talent agents. New clients are required to pay in PROBLEM 4.7A advance for studio services. Bands with established credit are billed for studio services at the end Preparing Adjusting Entries of each month. Adjusting entries are performed on a monthly basis. An unadjusted trial balance from a Trial Balance dated December 31, 2015, follows. (Bear in mind that adjusting entries already have been made for the first 1 1 months of 2015, but not for December.) KEN HENSLEY ENTERPRISES, INC. UNADJUSTED TRIAL BALANCE DECEMBER 31, 2015 Cash ..... . . . . . . . . ... $ 43,170 Accounts receivable .. . . 81,400 Studio supplies . . . . . . . 7,600 Unexpired insurance . . . . . 500 Prepaid studio rent . . . . . . .. 4,000 Recording equipment . . . ... 90,000 Accumulated depreciation: recording equipment $ 52,500 Notes payable . . . . .. .... 16,000 Interest payable 840 Income taxes payable . . 3.200 Unearned studio revenue 9.600 Capital stock 80,000 Retained earnings . 38,000 Studio revenue earned 107,000 Salaries expense .. 18,000 Supplies expense 1,200 Insurance expense . 2.680 Depreciation expense: recording equipment 16,500 Studio rent expense . . 21,000 Interest expense 840 Utilities expense 2.350 Income taxes expense . 17,900 $307,140 $307,140 Other Data 1. Records show that $4,400 in studio revenue had not yet been billed or recorded as of December 31. 2. Studio supplies on hand at December 31 amount to $6,900. . On August 1, 2015, the studio purchased a six-month insurance policy for $1,500. The entire premium was initially debited to Unexpired Insurance. The studio is located in a rented building. On November 1, 2015, the studio paid $6,000 rent in advance for November, December, and January. The entire amount was debited to Prepaid Studio Rent. The useful life of the studio's recording equipment is estimated to be five years (or 60 months). The straight-line method of depreciation is used. On May 1, 2015, the studio borrowed $16,000 by signing a 12-month, 9 percent note payable to First Federal Bank of St. Louis. The entire $16,000 plus 12 months' interest is due in full on April 30, 2016. 7. Records show that $3,600 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 $540. 9. The studio's accountant estimates that income taxes expense for the entire year ended Decem- ber 31, 2015, is $19,600. (Note that $17,900 of this amount has already been recorded.) Instructions a. For each of the above numbered paragraphs, prepare the necessary adjusting entry (including an explanation). . Using figures from the company's unadjusted trial balance in conjunction with the adjusting entries made in part a, compute net income for the year ended December 31, 2015. Was the studio's monthly rent for the last 2 months of 2015 more or less than during the first 10 months of the year? Explain your answer. d. Was the studio's monthly insurance expense for the last five months of 2015 more or less than the average monthly expense for the first seven months of the year? Explain your answer. If the studio purchased all of its equipment when it first began operations, for how many months has it been in business? Explain your answer. f. Indicate the effect of each adjusting entry prepared in part a on the major elements of the com- pany's 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. Income Statement Balance Sheet Adjusting Net Owners' Entry Revenue - Expenses = Income Assets - Liabilities Equity NE NE
