The unadjusted trial balance of Good Times, Inc., at January 31, 2010, does not balance. In addition, the trial balance needs to be adjusted before the financial statements at January 31, 2010 can be prepared. The manager of Good Times needs to know the business’s current ratio.

Cash.................................................... $ 8,000

Accounts receivable............................. 4,200

Supplies............................................... 800

Prepaid rent......................................... 1,200

Land.................................................... 43,000

Accounts payable................................ 12,000

Salary payable..................................... 0

Unearned service revenue.................... 700

Note payable, due in three years ......... 23,400

Common stock.................................... 5,000

Retained earnings................................ 9,300

Service revenue.................................... 9,100

Salary expense..................................... 3,400

Rent expense....................................... 0

Advertising expense............................. 900

Supplies expense.................................. 0

Requirements

1. How much out of balance is the trial balance? Notes Payable (the only error) is understated.

2. Good Times needs to make the following adjustments at January 31:

a. Supplies of $400 were used during January.

b. The balance of Prepaid Rent was paid on January 1 and covers the whole year 2010.

No adjustment was made on January 31.

c. At January 31, Good Times owes employees $1,000.

d. Unearned service revenue of $500 was earned during January.

Prepare a corrected, adjusted trial balance. Give Notes Payable its correct balance.

3. After the error is corrected and after these adjustments are made, compute the current ratio of Good Times, Inc. If your business had this current ratio, could you sleep at night?