USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT 5 QUESTIONS

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance Account Cash Accounts Receivable Supplies Building Accounts Payable Unearned Service Revenue Common Stock Retained Earnings Service Revenue Wage Expense Rent Expense Utilities Expense Debit $430,900 $158,000 $111,000 $ 90,000 Credit $ 45,900 $108,000 $100,000 0- $ 619,200 $ 48,600 $12,400 $6,200 $16,000 $ 873,100 TOTALS $ 873,100 In addition, Magic has not yet adjusted for the following I. The building was purchased on March 1 of the current year. It has a 30-year life, 10% salvage value and Magic uses the straight-line method for depreciation. 2. On September 1, Magic prepaid $12,400 for 10 months of rent on a warehouse. The original entry was recorded as Rent Expense 3, By December 31st, 30% of the of the services related to the Unearned Revenues had been performed. 4. Wages of $4,600 should be accrued and are scheduled to be paid on January 2. 5. Supplies of $98,000 were still on hand at year end 6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible

Solution

Unadjusted Adjustments Adjusted Account Debit Credit Debit Credit Debit Credit Cash $     430,900 $     430,900 Accounts Receivable $     158,000 $     158,000 Allowance for uncollectibles $    4,740 $      4,740 Prepaid rent $          7,440 $          7,440 Supplies $     111,000 $ 13,000 $        98,000 Building $        90,000 $        90,000 Accumulated depreciation-Building $    2,250 $      2,250 Accounts Payable $    45,900 $    45,900 Wages Payable $    4,600 $      4,600 Unearned Service Revenue $ 108,000 $        32,400 $    75,600 Common Stock $ 100,000 $ 100,000 Retained Earnings $             -   $             -   Service Revenue $ 619,200 $ 32,400 $ 651,600 Wage Expense $        48,600 $          4,600 $        53,200 Rent Expense $        12,400 $    7,440 $          4,960 Utilities Expense $          6,200 $          6,200 Administrative Expense $        16,000 $        16,000 Depreciation expense $          2,250 $          2,250 Supplies expense $        13,000 $        13,000 Bad debt expense $          4,740 $          4,740 TOTALS $     873,100 $ 873,100 $        64,430 $ 64,430 $     884,690 $ 884,690 Allownace for uncollectibles (158000 x 3%) Supplies expense (111000-98000) Depreciation expense (90000-10%*90000)*10/360 Service revenue increased by(108000 x 30%) Rent expense is credited to prepaid rent by (12400*6/10) Assets = Liabilities + Equity Before adjustments -          789,900 =          153,900 +          636,000 After Adjustments 777350 = 126100 + 651250 net effect            12,550            27,800            15,250 Overstated Overstated Understated Ans6 Ans 7 ans 8 Balance sheet -before adjustments Assets Liabilities and equity Current assets: Current liabilities: Cash $ 430,900 Accounts Payable 45900 Accounts receivable $ 158,000 Wages Payable Less: Allowance for uncollectibles $             -   $ 158,000 Unearned Service Revenue 108000 Prepaid rent $             -   Total current liabilities 153900 Supplies $ 111,000 Common Stock 100000 Total current assets $ 699,900 Retained earnings* $ 536,000 Fixed assets: Total equity $ 636,000 Building $    90,000 Less: Accumulated depreciation $    90,000 Total assets $ 789,900 Total Liabilities & Equity $ 789,900 * (619200-48600-12400-6200-16000) Balance sheet -after adjustments Assets Liabilities and equity Current assets: Current liabilities: Cash 430900 Accounts Payable 45900 Accounts receivable 158000 Wages Payable 4600 Less: Allowance for uncollectibles -4740 153260 Unearned Service Revenue 75600 Prepaid rent 7440 Total current liabilities 126100 Supplies 98000 Common Stock 100000 Total current assets 689600 Retained earnings** $ 551,250 Fixed assets: Total equity $ 651,250 Building 90000 Less: Accumulated depreciation -2250 87750 Total assets 777350 Total Liabilities & Equity $ 777,350 **(651600-53200-4960-6200-16000-2250-13000-4740)