Question:

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:

Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance:

Account	Debit	Credit
Cash	$ 430,900
Accounts Receivable	$158,000
Supplies	$111,000
Equipment	$120,000
Accounts Payable		$ 45,900
Unearned Service Revenue		$ 113,600
Common Stock		$ 100,000
Retained Earnings		-0-
Service Revenue		$ 649,200
Wage Expense	$ 48,600
Rent Expense	$ 18,000
Utilities Expense	$ 6,200
Administrative Expense	$ 16,000	___________
TOTALS	$ 908,700	$ 908,700

In addition, Magic has not yet adjusted for the following:

1. The equipment was purchased on March 1 of the current year. It has a 10-year life, 10% salvage value and Magic uses the double declining balance method for depreciation. Magic records depreciation to the nearest full month.

2. On March 1, Magic prepaid $18,000 for 12 months of rent on an office/warehouse. The original entry was recorded as Rent Expense.

3. By December 31st, 60% of the services related to the Unearned Revenues had been performed.

4. Wages of $5,700 should be accrued and are scheduled to be paid on January 2.

5. Supplies of $33,000 were still on hand at year end.

6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible.

Part A:

To record AJE #2, Magic should do which of the following to record the correct adjustment:

A	credit Prepaid Rent for $3,000

B	debit Rent Expense for $15,000

C	Debit Prepaid Rent for $15,000

D	credit Rent Expense for $3,000

Part B:

Using the information presented above for Magic Cleaning Services, determine Net Income AFTER all adjustments have been recorded: $_____________________________

(*Note: When recording your answer, do not use a dollar sign or comma. Example: If your answer is $452,000, enter your answer as 452000.)

Part C:

Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Assets.

ASSETS	LIABILITIES	EQUITY
[BLANK_A]

(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)

Part D:

Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total EQUITY.

ASSETS	LIABILITIES	EQUITY
		[BLANK_C]

(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)

Part E:

Using the information presented for Magic Cleaning Services, IF none of the (6) adjusting journal entries had been recorded, determine the effect on Total Liabilities.

ASSETS	LIABILITIES	EQUITY
	[Blank_B]

(*NOTE: When recording your answer, use O for Overstated, U for Understated, or NE for No Effect. Do not space between your O/U/NE and the dollar amount of the error. Example: If your answer for the effect on Assets is Understated by $10,500, enter your answer as U10500. Do not use dollar signs or commas when recording your answer.)