Ken Hensley Enterprises, Inc., is a small recording studio in St. Louis. Rock bands use the studio to mix high-quality demo recordings distributed to talent agents. New clients are required
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Ken Hensley Enterprises, Inc., is a small recording studio in St. Louis. Rock bands use the studio to mix high-quality demo recordings distributed to talent agents. New clients are required to pay in advance for studio services. Bands with established credit are billed for studio services at the end of each month.
| KEN HENSLEY ENTERPRISES, INC. UNADJUSTED TRIAL BALANCE DECEMBER 31, CURRENT YEAR |
||||||
| Cash | $ | 51,804 | ||||
| 97,680 | ||||||
| Studio supplies | 9,120 | |||||
| Unexpired insurance | 600 | |||||
| Prepaid studio rent | 4,800 | |||||
| Recording equipment | 108,000 | |||||
| $ | 63,000 | |||||
| Notes payable | 19,200 | |||||
| Interest payable | 1,008 | |||||
| Income taxes payable | 3,840 | |||||
| Unearned studio revenue | 11,520 | |||||
| Capital stock | 96,000 | |||||
| 45,600 | ||||||
| Studio revenue earned | 128,400 | |||||
| Salaries expense | 21,600 | |||||
| Supplies expense | 1,440 | |||||
| Insurance expense | 3,216 | |||||
| Depreciation expense: recording equipment | 19,800 | |||||
| Studio rent expense | 25,200 | |||||
| Interest expense | 1,008 | |||||
| Utilities expense | 2,820 | |||||
| Income taxes expense | 21,480 | |||||
| $ | 368,568 | $ | 368,568 | |||
Other Data
- Records show that $5,280 in studio revenue had not yet been billed or recorded as of December 31.
- Studio supplies on hand at December 31 amount to $8,280.
- On August 1 of the current year the studio purchased a six-month insurance policy for $1,800. The entire premium was initially debited to Unexpired Insurance.
- The studio is located in a rented building. On November 1 of the current year the studio paid $7,200 rent in advance for November, December, and January. The entire amount was debited to Prepaid Studio Rent.
- The useful life of the studio’s recording equipment is estimated to be five years (or 60 months). The straight-line method of depreciation is used.
- On May 1 of the current year the studio borrowed $19,200 by signing a 12-month, 9 percent note payable to First Federal Bank of St. Louis. The entire $19,200 plus 12 months’ interest is due in full on April 30 of the upcoming year.
- Records show that $4,320 of cash receipts originally recorded as Unearned Studio Revenue had been earned as of December 31.
- Salaries earned by recording technicians that remain unpaid at December 31 amount to $648.
- The studio’s accountant estimates that income taxes expense for the entire year ended December 31 is $23,520. (Note that $21,480 of this amount has already been recorded.)
Required:
a. For each of the numbered paragraphs, prepare the necessary adjusting entry.
- 1-Record the accrued studio revenue earned in December.
b. Using figures from the company’s unadjusted trial balance in conjunction with the adjusting entries made in part a, compute net income for the year ended December 31.
- 2-Record the studio supplies used in December.
c. Was the studio’s monthly rent for the last 2 months of the current year more or less than during the first 10 months of the year?
- 3-Record the December insurance expense.
d. Was the studio’s monthly insurance expense for the last five months of the current year more or less than the average monthly expense for the first seven months of the year?
4-Record the studio rent in December.
e. If the studio purchased all of its equipment when it first began operations, for how many months has it been in business?
5-Record the depreciation expense in December.
f. Indicate the effect of each adjusting entry prepared in part a on the major elements of the company’s income statement and balance sheet. Organize your answer in tabular form using the column headings shown. Use the symbols I for increase, D for decrease, and NE for no effect. The answer for the adjusting entry number 1 is provided as an example.
6-Record the accrued interest expense in December.
7-Record the advance collections earned in December.
8-Record the salaries accrued in December.
9-Record the income taxes accrued in December.
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