Pirate Pete Moving Corporation has been in operation since January 1, 2014. It is now December 31, 2014, the end of the annual accounting period. The company has not done well financially during its first year, although revenue has been fairly good. Three share- holders manage the company, but they have not given much attention to record-keeping. In view of a serious cash shortage, they have applied to your bank for a $20,000 loan. As a loan officer, you requested a complete set of financial statements. The following 2014 annual financial statements were prepared by the company's office staff.

After briefly reviewing the statements and "looking into the situation," you requested that the statements be redone (with some expert help) to "incorporate depreciation, accruals, supply counts, income taxes, and so on." As a result of a review of the records and supporting documents, the following additional information was developed:
a. The Supplies amount of $6,000 shown on the balance sheet has not been adjusted for supplies used during 2014. A count of the supplies on hand on December 31, 2014, showed $1,800.
b. The insurance premium paid in 2014 was for years 2014 and 2015. The total insurance premium was debited in full to Prepaid Insurance when paid in 2014 and no adjustment has been made.
c. The equipment cost $40,000 when purchased January 1, 2014. It had an estimated annual depreciation of $8,000. No depreciation has been recorded for 2014.
d. Unpaid (and unrecorded) salaries at December 31, 2014, amounted to $2,200. e. At December 31, 2014, transportation revenue collected in advance amounted to $7,000. This amount was credited in full to Transportation Revenue when the cash was collected earlier during 2014. f. Income taxes for the year are calculated as 25 percent of income before tax.
Required
1. Prepare the adjusting journal entries required on December 31, 2014, based on the pre- ceding additional information. You may need to create new accounts not yet included in the income statement or balance sheet.
2. Redo the preceding statements after taking into account the adjusting journal entries. One way to organize your response follows:

3. The effects of recording the adjusting journal entries were to
a. Increase or decrease (select one) net income by $______.
b. Increase or decrease (select one) total assets by $_______.
4. Write a letter to the company explaining the results of the adjustments and your preliminary analysis.

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PIRATE PETE MOVING CORPORATION PIRATE PETE MOVING CORPORATION Balance Sheet Income Statement At December 31, 2014 For the Period Ended December 31, 2014 Assets $85,000 Transportation Revenue $ 2,000 Cash Expenses: Salaries Expense Supplies Expense Other Expenses Accounts Receivable Supplies Equipment Prepaid Insurance Remaining Assets 3,000 17,000 6,000 12,000 40,000 18,000 4,000 Total Expenses 47,000 27,000 Net Income $38,000 Total Assets $82,000 Liabilities $ 9,000 Accounts Payable Shareholders' Equity Contributed Capital Retained Earnings 35,000 38,000 Total Liabilities and Shareholders' Equity $82,000 Changes Amounts Corrected Minus Items Reported Plus Amounts (List here each item from the two statements)