Sandhill Consulting Ltd. has been in business for several years, providing software consulting to its customers on an annual contract or special assignment basis. All work is done over the Internet, although some travel is occasionally required for meeting with customers to negotiate contracts and renewals of contracts, as well as resolving possible disputes in invoicing for their services. Sandhill operates out of rented premises and has a modest investment in equipment that is used by the consulting team. Sandhill is a private company that follows ASPE and that has a calendar year end. At the end of each year, Sandhill obtains the services of an accountant to complete the annual accounting cycle of the business and prepare any year-end adjusting of journal entries, financial statements, and corporate tax returns. Upon arrival in early 2020, the accountant was given an unadjusted trial balance and obtained the following additional information to complete his work.

Sandhill Consulting Ltd. Unadjusted Trial Balance December 31, 2020
Account		Debit		Credit
Petty cash		$696
Cash		21,460
Accounts receivable		51,852
Allowance for doubtful accounts				2,088
Interest receivable		0
Prepaid insurance		4,640
Supplies		2,320
FV-NI investments		23,200
Notes receivable		29,000
Equipment		109,040
Accumulated depreciationequipment				41,760
Goodwill		25,520
Bank loans				20,880
Accounts payable				9,222
Salaries and wages payable				0
Interest payable				0
Unearned revenue				4,872
Litigation liability				0
Income tax payable		30,000
Common shares				41,760
Retained earnings				69,368
Dividends		30,160
Service revenue				276,811
Interest income				1,209
Unrealized gain or loss				0
Gain on disposal of equipment				348
Depreciation expense		0
Office expense		4,756
Travel expense		7,772
Insurance expense		1,044
Interest expense		1,508
Utilities expense		870
Rent expense		62,640
Salaries and wages expense		57,432
Supplies expense		0
Bad debt expense		0
Telephone and Internet expense		3,712
Repairs and maintenance expense		696
Litigation expense		0
Income tax expense		0
		$468,318		$468,318

Additional information:

1.

Management has been going over the list of accounts receivable for possible accounts that are not collectible. One account for $812 must be written off. In the past, 5% of the balance of all accounts receivable has been the basis of an estimate for the required balance in the allowance for doubtful accounts. Management feels that this estimate should be followed for 2020.

2.

After doing a count of supplies on hand, management determined that $464 of supplies remained unused at December 31, 2020.

3.

The account balance in Prepaid Insurance of $4,640 represents the annual cost of the renewal of all of Sandhills insurance policies that expire in one year. The policies coverage started April 1, 2020.

4.

FV-NI Investments are long-term investments. The fair value of the portfolio of investments was $26,100 at December 31, 2020, based on quoted market values on the TSX.

5.

In January 2020, some old equipment was sold for proceeds of $348 cash. The entry made when depositing the cash was debit Cash, credit Gain on Disposal of Equipment. The original cost of the equipment was $4,988 and the accumulated depreciation was $4,872.

6.

The depreciation expense for the remaining equipment was calculated to be $8,352 for the 2020 fiscal year.

7.

The notes receivable from customers are due October 31, 2023, and bear interest at 5%, with interest paid semi-annually. The last interest collected related to the notes was for the six months ended October 31, 2020.

8.

Bank loans are demand bank loans for working capital needs and vary in amount as the needs arise. The bank advised that the interest charge for December 2020 that will go through on the January 2021 bank statement is in the amount of $232.

9.

Unpaid salaries and wages at December 31, 2020, totalled $916. These will be paid as part of the first payroll of 2021.

10.

After some analysis, management informs the accountant that the Unearned Revenue account should have a balance of $1,160.

11.

Sandhill was sued by one of its former clients for $58,000 for giving bad advice and instructions. Upon discussion with legal counsel, it has been agreed that it will likely take $5,800 to settle this dispute out of court, in the next fiscal year. No entry has yet been recorded.

12.

The accountant is told that a sublet lease arrangement for some excess office space has been negotiated and signed. It will provide Sandhill with rent revenue starting on February 1, 2021, at a rate of $464 per month.

13.

Sandhill has been making income tax instalments as required by the Canada Revenue Agency. All instalment payments have been debited to the Income Taxes Payable account.

14.

After recording all of the necessary adjustments and posting to the general ledger, management drafted a new trial balance to arrive at the income before income taxes. Using this result, the accountant prepared the tax returns, and determined that a tax rate of 25% needed to be applied to the income before income tax amount. The necessary adjusting entry for taxes has not yet been recorded.

Prepare all necessary adjusting and correcting entries required based on the information given, up to item 14.

b. Post the journal entries in adjustment columns and arrive at an adjusted trial balance. Enter the journal entries in the following worksheet format:

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Account	Debit	Credit	Debit	Credit	Debit	Credit

c. Using the adjusted trial balance columns of your worksheet, calculate the amount of income before income taxes. Use the information provided in item 14 to record income tax expense for the year.

d. Prepare a single-step statement of income, a statement of retained earnings, and a statement of financial position for 2020.