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-   -   Adjusting entry alternative method (https://www.askmehelpdesk.com/showthread.php?t=72461)

  • Mar 15, 2007, 01:55 PM
    tryingtogetthis
    Adjusting entry alternative method
    My net income is 1100 over what it should be and I can't figure it out. Help would be greatly appreciated.

    Here is the premise:
    Original Trial balance:
    Debits
    Cash 9500
    Accounts Receivable 14000
    Equipment 45000
    Insurance Expense 1800
    Salaries Expense 30000
    Supplies Expense 3700
    Advertising Expense 1900
    Rent Expense 1500
    Utilities Expense 1750
    Totals 109,100

    Credits
    Notes Payable 20000
    Accounts Payable 9000
    Jill Salzer, Capital 22000
    Graphic Revenue 52100
    Consulting Revenue 6000
    Totals 109,100

    1. The 3700 balance in Supplies Expense represents supplies purchased in January. At June 30, 1300 of supplies was on hand.
    2. The note payable was issued on Feb. 1. It is a 12% 6 month note.
    3. The balance in Insurance expense is the premium on a one-year policy, dated March 1, 2005.
    4. Consulting fees are credited to revenue when received. At June 30, consulting fees of 1100 are unearned.
    5. graphic revenue earned but unrecorded at June 30 totals 2000.
    6. Depreciation is 3000 per year.


    Here are my Journal entries:
    1.Supplies Dr 2400
    Supplies Expense Cr 2400

    2. Interest Expense Dr 1000
    Interest Payable Cr 1000

    3. Prepaid Insurance Dr 1200
    Insurance Expense Cr 1200

    4. Consulting Revenue Dr 1100
    Unearned Consulting Revenue Cr 1100

    5. Accounts Receivable Dr 2000
    Graphic Revenue Cr 2000

    6. Depreciation Expense Dr 1500
    Accumulated Depreciation Cr. 1500

    So then, my trial balance is correct at 113600, which is what the book says it should be.
    Trial Balances

    Debits:
    Cash 9500
    Accounts receivable 16000
    Equipment 45000
    Insurance expense 600
    Salaries expense 30000
    Advertising expense 1900
    Rent expense 1500
    Utilities expense 1700
    Interest expense 1000
    Depreciation expense 1500
    Prepaid isurance 1200
    Supplies 2400

    Credits:
    Notes payable 20000
    Accounts payable 9000
    Interest payable 1000
    Jill Salzer, Capital 22000
    Graphic revenue 54100
    Consulting revenue 4900
    Accumulated depreciation 1500
    Unearned consulting revenue 1100

    Everything is adding up until I get to my income statement. Net income should be 18,400, but I get 19500.

    Revenues
    Graphic revenue 54100
    Consulting revenue 4900
    Total revenues 59000

    Expenses
    Insurance exp 600
    Salaries exp 30000
    Supplies exp 1300
    Advertising exp 1900
    Rent exp 1500
    Utilities exp 1700
    Interest exp 1000
    Depreciation exp 1500
    Total expenses 39500

    Net income 19,500

    I have looked at this until I'm cross eyed and can't find my mistake. I'm sure it is to do with the unearned revenues, but I don't know what to do. Thank you thank you thank you in advance for
  • Mar 15, 2007, 06:58 PM
    CaptainForest
    FIRST PROBLEM:
    Your ORIGINAL trial balance does NOT balance.

    When I add your debits, I get 109,150


    Your adjusting Entries.

    I agree with 1-5.

    But for number 6….

    Quote:

    Originally Posted by tryingtogetthis
    6. Depreciation is 3000 per year.

    6. Depreciation Expense Dr 1500
    Accumulated Depreciation Cr. 1500

    Why did you only record depreciation expense at 1,500 and not 3,000?

    Adjusted Trial Balance:
    Debits
    Cash 9,500
    Accounts Receivable 14,000 + 2,000 = 16,000
    Prepaid Insurance 1,200
    Office Supplies 2,400
    Equipment 45,000
    Insurance Expense 1,800 – 1,200 = 600
    Salaries Expense 30,000
    Supplies Expense 3,700 – 2,400 = 1,300
    Advertising Expense 1,900
    Rent Expense 1,500
    Utilities Expense 1,750
    Interest Expense 1,000
    Depreciation Expense 3,000

    Totals 115,150

    Credits
    Notes Payable 20,000
    Accounts Payable 9,000
    Interest Payable 1,000
    Jill Salzer, Capital 22,000
    Graphic Revenue 52,100 +2,000 = 54,100
    Consulting Revenue 6,000 – 1,100 = 4,900
    Unearned Consulting Revenue 1100
    Accumulated Depreciation 3,000

    Totals 115,100


    I am going to stop right now until you get back with the correct original trial balance before adjustments.
  • Mar 16, 2007, 10:01 AM
    tryingtogetthis
    Thank-you for your response!

    Sorry, I gave incomplete information. The business was formed Jan 1 and this is a 6 months trial balance (June 30). That is why depreciation is 1500 instead of 3000.

    Utilities expense was originally 1700, not 1750 as I incorrectly stated.

    Let me try this again. The trial balance should be 113,600.
    Debits
    Cash 9500
    Accounts Receivable 16000
    Equipment 45000
    Insurance Expense 600
    Salaries Expense 30000
    Supplies Expense 1300
    Advertising Expense 1900
    Rent Expense 1500
    Utilities Expense 1700
    Interest Expense 1000
    Depreciation Expense 1500
    Prepaid Insurance 1200
    Supplies 2400

    Credits
    Notes Payable 20000
    Accounts Payable 9000
    Interest Payable 1000
    Jill Salzer, Capital 22000
    Graphic Revenue 54100
    Consulting Revenue 4900
    Accumulated Depreciation 1500
    Unearned Consulting Rev 1100
  • Mar 16, 2007, 04:16 PM
    CaptainForest
    Your adjusting Entries.

    I agree with 1-5.

    But for number 6….

    Quote:

    Originally Posted by tryingtogetthis
    6. Depreciation is 3000 per year.

    6. Depreciation Expense Dr 1500
    Accumulated Depreciation Cr. 1500

    Why did you only record depreciation expense at 1,500 and not 3,000?

    Adjusted Trial Balance:
    Debits
    Cash 9,500
    Accounts Receivable 14,000 + 2,000 = 16,000
    Prepaid Insurance 1,200
    Office Supplies 2,400
    Equipment 45,000
    Insurance Expense 1,800 – 1,200 = 600
    Salaries Expense 30,000
    Supplies Expense 3,700 – 2,400 = 1,300
    Advertising Expense 1,900
    Rent Expense 1,500
    Utilities Expense 1,700
    Interest Expense 1,000
    Depreciation Expense 3,000

    Totals 115,100

    Credits
    Notes Payable 20,000
    Accounts Payable 9,000
    Interest Payable 1,000
    Jill Salzer, Capital 22,000
    Graphic Revenue 52,100 +2,000 = 54,100
    Consulting Revenue 6,000 – 1,100 = 4,900
    Unearned Consulting Revenue 1100
    Accumulated Depreciation 3,000

    Totals 115,100



    Addition Notes/Comments to the Solution:

    I get an adjusted trial balance of 115,100 whereas you get 113,600. The reason for the difference is that I am using 3,000 in depreciation expense, whereas you are only using 1,500

    As for the income statement as per my numbers…

    Graphic Revenue 54,100
    Consulting Revenue 4,900
    TOTAL REVENUES 59,000

    Insurance Expense 600
    Salaries Expense 30,000
    Supplies Expense 1,300
    Advertising Expense 1,900
    Rent Expense 1,500
    Utilities Expense 1,700
    Interest Expense 1,000
    Depreciation Expense 3,000
    TOTAL EXPENSES 41,000

    NET INCOME 18,000

    I am getting a Net Income of 18K, your alternative would be 19,500.

    Not sure how it is suppose to be 18,400, perhaps I overlooked something. I will re-examine this in a bit.
  • Sep 30, 2007, 10:31 PM
    bernisscott12
    How do we know whether a trial balance is incomplete?

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