Sadie Palmer owns Palmer Creative Designs. The trial balance of the firm for January 31, 2013, the first month of operations, is shown on the bottom of page 146.
INSTRUCTIONS
1. Complete the worksheet for the month.
2. Prepare an income statement, statement of owner's equity, and balance sheet. No additional investments were made by the owner during the month.
3. Journalize and post the adjusting entries. Use 3 for the journal page number. Use the following account numbers: Supplies, 121; Prepaid Advertising, 130; Prepaid Rent, 131; Accumulated Depreciation-Equipment, 142; Supplies Expense, 517; Advertising Expense, 519; Rent Expense, 520; Depreciation Expense, 523.
End-of-the-month adjustments must account for the following items:
a. Supplies were purchased on January 1, 2013; inventory of supplies on January 31, 2013, is $ 1,100.
b. The prepaid advertising contract was signed on January 1, 2013, and covers a four-month period.

c. Rent of $ 1,600 expired during the month.
d. Depreciation is computed using the straight-line method. The equipment has an estimated useful life of 10 years with no salvage value.
Analyze: If the adjusting entries had not been made for the month, would net income be overstated or understated?

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Orange Corporation Worksheet Month Ended December 31, 2013 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME DEBIT 77 20 0 00 1200 0 00 CREDIT DEBIT CREDIT 1 Cash 2 Accounts Receivable Supplies 4 Prepaid Advertising 10 10 000 1440 0 00 (a) 60 00 00 (b) 24 0 0 00 Equipment (c)2 0 0 00 Accumulated Depreciation Equipment 7 Accounts Payable 12 0 0 0 00 108 00 0 00 Ted Coe, Capital g Ted Coe, Drawing 0 Fees Income 11 Advertising Expense 12 Depreciation Expense-Equipment 기210 0100 79 5 0 000 (b) 2400 00 .(c) 11200100 16 8 00 00 Salanies Expense 4 Supplies Expense 5 Utilities Expense 6l Totals 17 Net Income (a) 6000 00 180000 199 500 00 199 5 0 0 00 9600 00 96 00 00 Palmer Creative Designs Worksheet (Partial) Month Ended January 31, 2013 TRIAL BALANCE ACCOUNT NAME DEBIT CREDIT Cash 355 0 0 00 1216 0 이00 71750100 8 4 00 00 19 2 0000 21 6 0 0 00 Accounts Receivable Supplies 4 Prepaid Advertising Prepaid Rent Equipment Accumulated Depreciation-Equipment Accounts Payable 15550 00 60 0 0 000 Sadie Paimer, Capital 10 Sadie Palmer, Drawing 11 Fees Income 12 Advertising Expense 13 Depreciation Expense- Equipment 14 Rent Expense 15 Salaries Expense 16 Supplies Expense 17 Utilities Expense 18 Totals 19 7000 00 47 600 00 9 700 00 140 0 00 123 15 0 00 123 15 01 00 ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT OEBIT CREDIT 72 0 0 00 20 0 0 00 41 00 00 1200 0 00 77 20 0 00 12 000 00 1 0 0 00 12 0 0000 60 0 0 0 00 20 000 12 00000 108 0 0 0 00 112 0 0100 12 00 0 007 08 0 00 00 8 기2.0 0100 7 20 0 00 9 5 0 000 791 50 이 00 10 24 0 0 00 1200 00 1680 0 00 600 000 1 800 00 2007 0 0 00 240000 1 2 0000 16 8 0 0 00 6 00 000 1 8 000o 28 2 0 0 00 12 13 14 15 121 2 0 0 00 16 51 3 0 0 00 17 1725 0 이 00 18 19 200 7 0 0 00 79 5 0 0 00 172 5 0 000 7915 0 0100 7915 0 01 00 1725 0 0100