Flood Relief Inc. prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for June 2010:
a. Flood received a $10,000, 4%, two-year note receivable from a customer for services rendered. The principal and interest are due on June 1, 2012. Flood expects to be able to collect the note and interest in full at that time.
b. Office supplies totaling $5,600 were purchased during the month. The asset account Supplies is increased whenever a purchase is made. A count in the storeroom on June 30, 2010, indicates that supplies on hand amount to $507. The supplies on hand at the beginning of the month total $475.
c. The company purchased machines last year for $170,000. The machines are expected to be used for four years and have an estimated salvage value of $2,000.
d. On June 1, the company paid $4,650 for rent for June, July, and August, and increased the asset Prepaid Rent. It did not have a balance on June 1.
e. The company operates seven days per week with a weekly payroll of $7,000. Wage earners are paid every Sunday. The last day of the month is Saturday, June 30.
f. Based on its income for the month, Flood estimates that federal income taxes for June amount to $2,900.
1. For each of the preceding situations, identify and analyze the adjustment necessary on June 30, 2010.
2. Assume that Flood Relief reports income of $35,000 before any of the adjustments. What net income will Flood Relief report for June?