Question
West Laboratory provides service The trial balance at 30 September 2019, before adjustments is as follows: Debit Credit Cash $174,450 Accounts Receivable 17,000 Prepaid Rent
West Laboratory provides service The trial balance at 30 September 2019, before adjustments is as follows:
Debit | Credit | |
Cash | $174,450 | |
Accounts Receivable | 17,000 | |
Prepaid Rent | 28,000 | |
Prepaid insurance | 1,600 | |
Supplies inventory | 2,400 | |
Equipment | 183,600 | |
Accumulated Depreciation: Equipment | $68,850 | |
Accounts Payable | 18,100 | |
Unearned revenue | 14,000 | |
Share Capital | 200,000 | |
Retained Earnings | 44,700 | |
Revenue | 371,000 | |
Salaries Expense | 200,000 | |
Rent expense | 56,000 | |
Insurance expense | 3,200 | |
Utilities Expense | 9,600 | |
Depreciation Expense | 40,800 |
|
$716,650 | $716,650 |
The following information relates to month end adjustments:
- The useful life of the equipment was estimated to be 4 years with no residual value. West Laboratory uses straight-line method to calculate depreciation.
- A few customers pay in advance for the laboratory services provided by West Laboratory. Fees of $6,000 were earned during the month by providing service to customers who had paid in advance.
- Salaries earned by employees during the month but not yet recorded amounted to $23,000.
- On 1 July 2019, West Laboratory prepaid $42,000 for 6 months rent for the period from July to December 2019.
- On 1 January 2019, West Laboratory prepaid an insurance of $4,800 for the year from 1st January to 31st December 2019.
- Medical service provided during the month but not yet billed or recorded amounted to
$4,600.
Required:
- Prepare the adjusting entries for the month of September 2019.
- Prepare an income statement after the above adjustments.
(c) The president of West Laboratory was informed that the financial statements would be available "as soon as the adjusting entries are made." Being a non-accountant, the president feels adjustments should not be necessary if the accounting department is operating in a competent manner. Does the need for adjusting entries at the end of the period imply that transactions are not being recorded properly? Why adjusting entries are needed? Explain.
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