Question

Roadside Travel Court Ltd. was organized on July 1, 2017, by Betty Johnson. Betty is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Betty prepared the following income statement for her fourth quarter, which ended June 30, 2018.

ROADSIDE TRAVEL COURT LTD. Income Statement Quarter Ended June 30, 2018
Rent revenue				$214,000
Expenses
Salaries expense		$80,000
Repair and maintenance expense		4,100
Advertising expense		3,900
Depreciation expense		2,700
Utilities expense		800		91,500
Net income				$122,500

Betty suspected that something was wrong with the statement because net income had never exceeded $34,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.

You first look at the trial balance. In addition to the account balances reported above in the income statement, the trial balance contains the following additional selected balances at June 30, 2018.

Supplies		$ 8,300
Prepaid insurance		15,600
Mortgage payable		158,000

You then make inquiries and discover the following items:

1.		Rental revenue includes advanced rental payments received for summer occupancy in July, in the amount of $60,000.
2.		There were $800 of supplies on hand at June 30.
3.		Prepaid insurance resulted from the purchase of a one-year policy for $15,600 on April 1, 2018.
4.		The mail the first week of July brought the following bills: advertising for the week of June 24, $100; repairs made June 18, $4,670; and utilities for the month of June, $200.
5.		Salaries are $290 per day. At June 30, four days’ salaries have been incurred but not paid.
6.		Interest on the mortgage payable is $1,975 for the quarter and due July 1.
7.		Income tax of $8,300 for the quarter is due in July.

a. Prepare the adjusting journal entries required at June 30, assuming adjusting entries are made quarterly

b. Prepare a correct income statement for the quarter ended June 30, 2018.

Answer 1

Credit Debit $60,000 $60,000 Amount $1,54,000 [$214000-$6000] $7,500 $7,500 $3,900 [$80000+$1160] [$4100+$41670] [$3900+$100] $3,900 Ans b Roadside Travel Court Ltd Income Statement Quarter Ended June 30, 2018 Particulars Amount Rent Revenue Less: Expenses Salary Expense $81,160 Repair and maintenance expense $8,770 Advertising expense $4,000 Depreciation expense $2,700 Utilities expense $1,000 Supplies Expense $7,500 Interest Expense $1,975 Insurance Expense $3,900 Income Tax Expense $8,300 Total Expense Net Income Ans a Date Account Title June 30 Rental Revenue Unearned Rental Revenue (To record unearned revenue) June 30 Supplies Expense ($8300-$800] Supplies (To record supplies expense) June 30 Insurance Expense ($15600/12x3] Prepaid Insurance (To record insurance expense) June 30 Advertising Expense Repairs and Maintainance Expense Utilities Expense Accounts Payable (To record expense) June 30 Salaries Expense ($290x4] Salaries Payable (To record salary expense) June 30 Interest Expense Interest Payable (To record interest expense) June 30 Income Tax Expense Income Tax Payable (To record income tax expense) [$800+$200] $100 $4,670 $200 $4,970 $1,160 ($1,19,305) $34,695 $1,160 $1,975 $1,975 $8,300 $8,300