(Appendixes) ADJUSTING ENTRY AND PREPARATION OF FINANCIAL STATEMENTS.

Michael’s Hardware has the following unadjusted trial balance at the end of 19x3:

The following data are also available for preparation of adjusting entries:

a) One month’s insurance ($250) remains prepaid at December 31, 19x3.

b) The building had an expected life of 10 years and an expected residual value of

$25,000 when purchased.

c) Six months’ interest at 10% is unpaid and unrecorded on the note payable at yearend.

d) Based on a physical inventory, the appropriate ending balance for merchandise inventory is $74,400.

e) The income tax rate is 30%.

REQUIRED:

1. Prepare adjusting entries for 19x3.

2. Prepare an income statement, a statement of changes in retained earnings, and a balance sheet using adjusted account balances. LO5