The records of Thinker’s School Supplies showed the following amounts at December 31, 2011, before adjustments:

Prepaid insurance...............$ 2,400

Supplies ................... 2,250

Unearned service fees (unearned revenue) ..... 5,680

Notes payable................29,000

Service fees revenue.............175,000

Salary expense .................95,000

Prepaid rent .................. 6,250

Insurance expense ...............0

Supplies expense ................0

Rent expense ................0

Interest expense ...............0

Interest payable ................0

Wages payable .................0

Before Thinker’s prepares the financial statements for the business at December 31, 2011, adjustments must be made for the following items:

a. The prepaid insurance is for a 12-month policy purchased on March 1 for cash. The policy is effective from March 1, 2011, to February 28, 2012.

b. A count of the supplies on December 31 revealed $400 worth still on hand.

c. One customer paid for four months of service in advance on December 1. By December 31, one month of the service had been performed by Thinker’s.

d. The prepaid rent was for 10 months of rent for the company office building, beginning August 1.

e. The company took out a bank loan on October 1, 2011. The interest rate is 6% (1/2% per month) for one year.

f. As of December 31, the company owed its employees $5,000 for work done in 2011. The next payday is in January 2012.

Requirements

1. Show the adjustments in the accounting equation.

2. Prepare an income statement for the year ended December 31, 2011, for Thinker’s SchoolSupplies.