Q. No. 2. 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 quarterly basis. An unadjusted trial balance dated December 31, 2011, follows (Please see the next page). 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. 3. On August 1, 2011, the studio purchased a six-month insurance policy for $1,500. The entire premium was initially debited to Unexpired Insurance. 4. The studio is located in a rented building. On November 1, 2011, the studio paid $6,000 rent in advance for November, December, and January. The entire amount was debited to Prepaid Studio Rent. 5. 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. 6. On May 1, 2011, 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, 2012. 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 December 31, 2011, is $19,600. Instructions: a. For each of the above numbered paragraphs, prepare the necessary adjusting entry. Show your calculations where necessary. b. Prepare Income statement and Balance Sheet OR Work sheet only. C. Was the studio's monthly insurance expense for the last five months of 2011 more or less than the average monthly expense for the first seven months of the year? Explain your answer. d. 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. (5+5+5+2+3=20) Ken Hensley Enterprises Inc. Unadjusted Trial Balance December 31, 2011 venue Cash....... Accounts receivable Studio supplies ... Unexpired insurance. Prepaid studio rent.. Recording equipment Accumulated depreciation: recording equipment Notes payable...... Interest payable Income taxes payable... Uneamed studio rever Capital stock....... Retained earnings... Studio revenue earned Salaries expense Supplies expense. Insurance expense. Depreciation expense: recording equipment Studio rent expense Interest expense. Utilities expense Income taxes expense $ 43,170 81,400 7,600 500 4,000 90,000 $ 52,500 16,000 840 3,200 9,600 80,000 38,000 107,000 18,000 1,200 2,680 16,500 21,000 840 2,350 17,900 $307,140 $307,140
