The unadjusted trial balance of Good Times, Inc., at January 31, 20X6, does not balance. In addition, the trial balance needs to be adjusted before the financial statements at January 31, 20X6 can be prepared. The manager of Good Times needs to know the business's current ratio.
Cash.................................................... $ 6,000
Accounts receivable............................. 2,200
Supplies............................................... 800
Prepaid rent......................................... 1,200
Land.................................................... 41,000
Accounts payable................................ 10,000
Salary payable..................................... 0
Unearned service revenue.................... 700
Note payable, due in 3 years ............... 25,400
Common stock.................................... 5,000
Retained earnings................................ 7,300
Service revenue.................................... 9,100
Salary expense..................................... 3,400
Rent expense....................................... 0
Advertising expense............................. 900
Supplies expense.................................. 0
Required
1. How much out of balance is the trial balance? The error is in the Land account.
2. Good Times needs to make the following adjustments at January 31:
a. Supplies of $600 were used during January.
b. The balance of Prepaid Rent was paid on January 1 and covers the whole year 20X6. No adjustment was made on January 31.
c. At January 31, Good Times owes employees $400.
d. Unearned service revenue of $200 was earned during January.
Prepare a corrected, adjusted trial balance. Give Land its correct balance.
3. After the error is corrected and after these adjustments are made, compute the current ratio of Good Times, Inc. If your business had this current ratio, could you sleep at night?