Question

Please provide answers AND explanations for each of the 5 questions. correct answers will get a thumbs up.

Thank you!

Question 4 1 pts 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: Debit Credit $ 430,900 $158,000 $111,000 $ 90,000 Account Cash Accounts Receivable Supplies Building Accounts Payable Unearned Service Revenue Common Stock Retained Earnings Service Revenue Wage Expense Rent Expense Utilities Expense Administrative Expense TOTALS $ 45,900 $ 108,000 $ 100,000 -0- $ 619,200 $ 48,600 $ 12,400 $ 6,200 $ 16,000 $ 873,100 $ 873,100 In addition, Magic has not yet adjusted for the following: 40

Answer 1

Q4)

Answer - Credit rent expense for $ 7,440.

Explanation -

Rent expense for 10 months from September 1 = $ 12,400

Expense to be charged to the current year ( September 1 - December 31 ) = (12,400 / 10 months) x 4 months

= $4,960.

Prepaid expense for the year = 12,400 - 4,960 = $ 7,440.

In the original entry, entire $12,400 was charged to Rent expense account. We need to charge only $4,960.

Therefore, rent expense account is credited by $ 7,440. The resulting balance will then be (12,400 - 7,440 = 4,960)

Q5)

Answer - Net Income after all adjustments = $ 551,250.

Explanation -

Adjustment 1 : Depreciation is to be charged

Depreciation = ( Purchase Price - Salvage Value ) / Number of years = ( ( 90,000 - 9,000 ) / 30 ) x 10/12 = $ 2,250

Note - The depreciation is multiplied by 10 and divided by 12 so as to account for depreciation from March 1 to December 31 (10 months).

Entry to be passed -

Depreciation 2,250

Building 2,250

Therefore, depreciation reduces the net income by $ 2,250.

Adjustment 3 : Unearned revenues to be recognized

Amount of Unearned revenue to be recognized = 30% x 108,000 = $ 32,400

Entry to be passed -

Unearned Revenue 32,400

Service Revenue 32,400

Therefore, recognition of unearned revenue increases the net income by $32,400.

Adjustment 4 : Wages to be accrued.

Entry to be passed -

Wage Expense 4,600

Wage Expense Payable 4,600

Therefore, wages accrued decreases net income by $ 4,600.

Adjustment 5 : Overstating opening supplies amount

Since, the supplies amount has been overstated by 13,000 ( 111,000 - 98,000 ), it has to be reversed.

Entry to be passed -

Retained Earnings 13,000

Supplies 13,000

Therefore, this reduces the net income by $ 13,000.

Adjustment 6 : Creating a provision for doubtful debts

Provision amount = 3% x 158,000 = $ 4,740.

Therefore, this provision reduces the net income by $ 4,740.

Summarizing all the above adjustments, following is the calculation of net income -

Particulars	Amount	Amount
Revenue		651,600
Less : Costs
Effect of Overstating supplies	13,000
Provision for doubtful debtors	4,740
Wages	53,200
Rent Expense	4,960
Utilities Expense	6,200
Depreciation on Building	2,250
Administration expenses	16,000
Net Income	551,250

Refer to the following for questions 6,7 and 8

Balance sheet post all the adjustments -

Assets	Amount	Liabilities	Amount
Cash	430,900	Accounts Payables	45,900
Accounts Receivables	153,260	Wages Payable	4,600
Supplies	98,000	Unearned Service Revenue	75,600
Building	87,750	Capital	100,000
Prepaid Rent	7,440	Retained Earnings	551,250
	777,350		777,350

Q6)

Answer - O12550

Assets prior to adjustments = Cash (430,900) + Accounts Receivables (158,000) + Supplies (111,000) + Building (90,000) = 789,900

Assets post adjustments = 777,350 (Refer post adjustment balance sheet)

Therefore, the assets were overstated by $12,550.

Q7)

Answer - O27800

Liabilities prior to adjustments = Accounts Payable (45,900) + Unearned service revenue (108,000) = 153,900

Liabilities post adjustments = 45,900 + 4,600 + 75,600 = 126,100 (Refer post adjustment balance sheet)

Therefore, the liabilities were overstated by $27,800

Q8)

Answer - U551250

Equity prior to adjustments = 100,000

Equity post adjustments = 100,000 + 551,250 = 651,250 (Refer post adjustment balance sheet)

Therefore, the equity was understated by $551,250