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Use of a Trial Balance to Record Adjusting Entries in T-Accounts Four Star Video has been in the video rental business for five years. An

Use of a Trial Balance to Record Adjusting Entries in T-Accounts

Four Star Video has been in the video rental business for five years. An unadjusted trial balance at May 31, 2016, follows.

Four Star Video Unadjusted Trial Balance May 31, 2016
Debit Credit
Cash $4,000
Prepaid Rent 6,600
Video Inventory 25,600
Display Stands 8,900
Accumulated Depreciation $5,180
Accounts Payable 3,260
Customer Subscriptions 4,450
Capital Stock 5,000
Retained Earnings 22,170
Rental Revenue 9,200
Wage and Salary Expense 2,320
Utilities Expense 1,240
Advertising Expense 600
Totals $49,260 $49,260

The following additional information is available:

Four Star rents a store in a shopping mall and prepays the annual rent of $7,200 on April 1 of each year.

The asset account Video Inventory represents the cost of videos purchased from suppliers. When a new title is purchased from a supplier, its cost is debited to this account. When a title has served its useful life and can no longer be rented (even at a reduced price), it is removed from the inventory in the store. Based on the monthly count, the cost of titles on hand at the end of May is $23,140.

The display stands have an estimated useful life of five years and an estimated salvage value of $500. Assume Four Star Video uses the straight-line method of depreciation.

Wages and salaries owed but unpaid to employees at the end of May amount to $1,450.

In addition to individual rentals, Four Star operates a popular discount subscription program. Customers pay an annual fee of $120 for an unlimited number of rentals. Based on the $10 per month fee on each of these subscriptions, the amount recognized for the month of May is $2,440.

Four Star accrues income taxes using an estimated tax rate equal to 30% of the income for the month.

Required:

1. Set up below are T-accounts for each of the accounts in the trial balance, and any other T-accounts that will be needed to prepare adjusting entries.

2. Based on the additional information given, post the month-end adjusting entries directly to the T-accounts below. Use the letters (a) through (f) from the additional information to identify the entries. Four Star Video prepares adjusting entries at the end of each month.

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