Martin Rak, the owner of a newsletter for managers of hotels and restaurants, has prepared the following condensed figures from his company’s financial statements for 2011:

Revenues ………………….………………………    $ 432,500

Expenses ………………….……………………….   352,500

Net income ……………….……………………….      $ 80,000

Total assets ………………………………………..    $215,000

Liabilities ………………………………………….    $ 60,000

Stockholders’ equity ………………………………     155,000

Total liabilities and stockholders’ equity ………… $215,000

Given these figures, Rak is planning a cash dividend of $62,500. However, Rak’s accountant has found that the following items were overlooked:

a. Although the balance of the Printing Supplies account is $40,000, only $17,500 worth of supplies is on hand at the end of the year.

b. Depreciation of $25,000 on equipment has not been recorded.

c. Rak’s employees have earned wages of $11,750, but that amount has not been recognized in the accounts.

d. No provision has been made for estimated income taxes payable of $13,500.

e. A liability account called Unearned Subscriptions Revenue has a balance of $20,250, but one-third of these subscriptions have already been mailed to subscribers.

REQUIRED

1. Prepare the necessary adjusting entries.

2. Recast the condensed figures from the financial statements after you have made the necessary adjustments.

3. Discuss the performance of Rak’s business after the adjustments have been made.