Kitz Limo Service, Inc., was organized to provide limousine service between the airport and various suburban locations. It has just completed its second year of business. Its trial balance follows.

The following information is also available:
a. To obtain space at the airport, Kitz paid two years' rent in advance when it began the business.
b. An examination of insurance policies reveals that $2,800 expired during the year.
c. To provide regular maintenance for the vehicles, Kitz deposited $12,000 with a local garage. An examination of maintenance invoices reveals charges of $10,944 against the deposit.
d. An inventory of spare parts shows $1,902 on hand.
e. Kitz depreciates all of its limousines at the rate of 12.5 percent per year. No limousines were purchased during the year. (Round to the nearest dollar.)
f. A payment of $1,500 for one full year's interest on notes payable is now due.
g. Unearned Passenger Service Revenue on June 30 includes $17,815 for tickets that employers purchased for use by their executives but which have not yet been redeemed.
h. Federal income taxes for the year are estimated to be $13,250.
Required
1. Determine the adjusting entries and enter them in the general journal (Page 14).
2. Open ledger accounts for the accounts in the trial balance plus the following: Interest Payable (213); Income Taxes Payable (214); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation Expense-Limousines (517); Maintenance Expense (518); Interest Expense (519); and Income Taxes Expense (520). Record the balances shown in the trial balance.
3. Post the adjusting entries from the general journal to the ledger accounts, showing proper references.
4. Prepare an adjusted trial balance, an income statement, a statement of retained earnings, and a balance sheet.
5. What effect do the adjusting entries have on the income statement?

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Kitz Limo Service, Inc. Trial Balance June 30, 2014 Cash (111) Accounts Receivable (113) Prepaid Rent (117) Prepaid Insurance (118) Prepaid Maintenance (119) Spare Parts (140) Limousines (148) Accumulated Depreciation-Limousines (149) Notes Payable (211) Unearned Passenger Service Revenue (212) Common Stock (311) Retained Earnings (312) Dividends (313) Passenger Service Revenue (411) Gas and Oil Expense (510) Salaries Expense (511) Advertising Expense (513) 9,812 14,227 2,000 4,900 2,000 11,310 200,000 25,000 45,000 30,000 30,000 48,211 20,000 428,498 89,300 206,360 26,800 606,709 606,709