2P Mason Advertising was founded in... [FREE SOLUTION]

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Chapter 3: 2P (page 138)

Mason Advertising was founded in January 2013. Presented below are adjusted and unadjusted trial balances as of December 31, 2017.

MASON ADVERTISINGTRIAL BALANCEDECEMBER 31, 2017

Unadjusted Adjusted
Dr.
Cr.
Dr.
Cr.
Cash
$ 11,000
$ 11,000
Accounts Receivable
20,000
23,500
Supplies
8,400
3,000
Prepaid Insurance
3,350
2,500
Equipment
60,000
60,000
Accumulated Depreciation鈥擡quipment
$ 28,000
$ 33,000
Accounts Payable
5,000
5,000
Interest Payable
鈥�0鈥�
150
Notes Payable
5,000
5,000
Unearned Service Revenue
7,000
5,600
Salaries and Wages Payable
鈥�0鈥�
1,300
Common Stock
10,000
10,000
Retained Earnings
3,500
3,500
Service Revenue
58,600
63,500
Salaries and Wages Expense
10,000
11,300
Insurance Expense
850
Interest Expense
350
500
Depreciation Expense
5,000
Supplies Expense
5,400
Rent Expense
4,000

4,000

$117,100
$117,100
$127,050
$127,050
Instructions
Journalize the annual adjusting entries that were made. (Omit explanations.)
Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
Answer the following questions.
If the note has been outstanding 3 months, what is the annual interest rate on that note?
If the company paid $12,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Short Answer

Expert verified

The total debit and credit side of the journal is $17,600
Net income is $36,450

Statement of retained earnings shows the closing balance of retained earnings is $39,950

The balance sheet total is $67,000

Interest = $50

Salaries and wages payable = $2,500

Step by step solution

Meaning of Income Statement

The income statement sometimes referred to as a profit and loss statement, is a document created by a company's management that lists the company's earnings, costs, and net gain or loss for a given period.

(a) Preparing Journal entries

Date	Particulars	Debit ($)	Credit ($)
Dec. 31	Account receivable	3,500
	Service revenue		3,500

31	Unearned service revenue	1,400
	Service revenue		1,400

31	Supplies expense	5,400
	Supplies		5,400

31	Depreciation expense	5,000
	Accumulated depreciation- equipment		5,000

31	Internet expense	150
	Interest payable		150

31	Insurance expense	850
	Prepaid expense		850

31	Salaries and Wages Expense	1,300
	Salaries and Wages payable		1,300

		$17,600	$17,600

(b) Preparing income statement, statement of retained earnings, and unclassified balance sheet.

MASON ADVERTISING AGENCY Income Statement
Revenues
Service revenues	$63,500
Expenses
Salaries and wages expense $11,300
Supplies expense 5,400
Depreciation expense 5,000
Rent expense 4,000
Insurance expense 850
Interest expense 500
Total Income	27,050
Net Income	$36,450

MASON ADVERTISING AGENCY Statement of Retained Earnings
Retained earnings, January 1	$3,500
Add: Net Income	36,450
Retained earnings, December 31	$39,950

MASON ADVERTISING AGENCY Balance Sheet
Assets
Cash	$11,000
Accounts receivables	23,500
Supplies	3,000
Prepaid insurance	2,500
Equipment $60,000
Less: Accumulated depreciation-equipment 33,000	27,000
Total assets	$67,000

Liabilities and Stockholder鈥檚 Equity
Liabilities
Notes payable $5,000
Accounts payable 5,000
Unearned service revenue 5,600
Salaries and wages payable 1,300
Interest payable 150
Total liabilities	$17,050

Stockholders鈥� Equity
Common stock $10,000
Retained earnings 39,950	49,950
Total liabilities and stockholders鈥� equity	$67,000

(c) Explaining the answers

The monthly interest payment is $50 i.e., ($150/3 months) or 1% of the outstanding balance. 12 divided by 1 equals 12 percent annual interest.
Calculation of salaries and wages payable on December 31, 2016

Salaries and wages expense	$11,300
Less: Salaries and wages payable Dec 31, 2017	$1,300
	$10,000
Payments made in 2017	$12,500
Salaries and wages payable Dec 31, 2016	$2,500

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Short Answer

Step by step solution

Meaning of Income Statement

(a) Preparing Journal entries

(b) Preparing income statement, statement of retained earnings, and unclassified balance sheet.

(c) Explaining the answers

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MASON ADVERTISINGTRIAL BALANCEDECEMBER 31, 2017
	Unadjusted		Adjusted
	Dr.	Cr.	Dr.	Cr.
Cash	\( 11,000		\) 11,000
Accounts Receivable	20,000		23,500
Supplies	8,400		3,000
Prepaid Insurance	3,350		2,500
Equipment	60,000		60,000
Accumulated Depreciation鈥擡quipment		\( 28,000		\) 33,000
Accounts Payable		5,000		5,000
Interest Payable		鈥�0鈥�		150
Notes Payable		5,000		5,000
Unearned Service Revenue		7,000		5,600
Salaries and Wages Payable		鈥�0鈥�		1,300
Common Stock		10,000		10,000
Retained Earnings		3,500		3,500
Service Revenue		58,600		63,500
Salaries and Wages Expense	10,000		11,300
Insurance Expense			850
Interest Expense	350		500
Depreciation Expense			5,000
Supplies Expense			5,400
Rent Expense	4,000		4,000
	\(117,100	\)117,100	\(127,050	\)127,050