The following alphabetical listing shows all of the account balances taken from the unadjusted trial balance at December 31, 20C, the end of the first month in business for Virginia Graphics Corporation:

Virginia Graphics Corporation

Unadjusted Trial Balance

December 31, 20C

The note payable above was for $10,000 borrowed on December 1, 20C at the start of the business. The note and interest at 12% are to be repaid on June 30, 19E. The office equipment was acquired on December 1, 20C. It has an estimated life of 4 years with no salvage value. The company uses straight-line depreciation. The Unearned Fees resulted from $1,300 collected in advance from a new customer, Richmond Company, on December 10, 20C. By December 31, 20C, services amounting to $1,000 had been provided to Richmond Company. The company expects to pay income taxes of 10% on pretax profit.

Virginia Graphics needs help in preparing its financial statements for its first month in business. Since you are taking an accounting course, your neighbor, the owner of Virginia Graphics, has asked you to help.

Required:

1. Prepare the necessary adjusting journal entries based on the information provided above. (You need not include explanations).

2. Prepare an income statement.

3. Explain the effect on the income statement if the adjustment for interest expense had not been made.

Transcribed Image Text:

Trade Payables Trade Receivables Advertising Expense Share Capital Cash $1,000 5,500 200 5,000 6,200 5,000 28,000 10,000 14,400 Dividends Declared Fees Earned Notes Payable Office Equipment Rent expense Retained Earnings (Dec 1, 20C) Salaries Expense Unearned Fees 400 -0- 13,400 1,300 Utilities Expense 200 Trade Payables Trade Receivables Advertising Expense Share Capital Cash $1,000 5,500 200 5,000 6,200 5,000 28,000 10,000 14,400 Dividends Declared Fees Earned Notes Payable Office Equipment Rent expense Retained Earnings (Dec 1, 20C) Salaries Expense Unearned Fees 400 -0- 13,400 1,300 Utilities Expense 200