use of account balances as a basis for adjustments lorimatlock 251019

Use of Account Balances as a Basis for Adjustments LoriMatlock operates a graphic arts business. A list of accounts on June 30, 2010, before recording any adjustments, appears as follows:

Cash ……………………………………$ 7,000

Prepaid Rent …………………………… 18,000

Supplies ………………………………… 15,210

Office Equipment ………………………. 46,120

Accumulated Depreciation—Equipment . 4,000

Accounts Payable ………………………. 1,800

Notes Payable ………………………….. 2,000

Capital Stock …………………………… 50,000

Retained Earnings ……………………… 24,350

Dividends ……………………………… 8,400

Revenue ……………………………….. 46,850

Utilities Expense ………………………. 2,850

Salaries Expense ………………………. 19,420

Advertising Expense ………………….. 12,000

Other Data

a. The monthly rent is $600.

b. Supplies on hand on June 30, 2010, amount to $1,290.

c. The office equipment was purchased on June 1, 2009. On that date, it had an estimated useful life of ten years and a salvage value of $6,120.

d. Interest owed on the note payable but not yet paid amounts to $50.

e. Salaries of $620 are owed but unpaid to employees at the end of the month.

Required

1. For each of the items of other data,

(a) through (e), identify and analyze the necessary adjustments at June 30, 2010.

2. Compute the net increase or decrease in net income for the month from the recognition of the adjustments in (1). (Ignore income taxes.)

3. Note the balance in Accumulated Depreciation—Equipment of $4,000. Explain why the account contains a balance of $4,000 on June 30, 2010.

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