Roadside Travel Court Ltd. was organized on July 1, 2017, by Betty Johnson. Betty is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Betty prepared the following income statement for her fourth quarter, which ended June 30, 2018.

Betty suspected that something was wrong with the statement because net income had never exceeded $35,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.

You first look at the trial balance. In addition to the account balances reported above in the income statement, the trial balance contains the following additional selected balances at June 30, 2018.

Supplies ………………………………..          $   8,200

Prepaid insurance ……………………..          14,400

Mortgage payable ……………………..        150,000

You then make inquiries and discover the following items:

1. Rental revenue includes advanced rental payments received for summer occupancy in July, in the amount of $57,000.

2. There were $800 of supplies on hand at June 30.

3. Prepaid insurance resulted from the purchase of a one-year policy for $14,400 on April 1, 2018.

4. The mail the first week of July brought the following bills: advertising for the week of June 24, $110; repairs made June 18, $4,450; and utilities for the month of June, $215.

5. Salaries are $300 per day. At June 30, four days' salaries have been incurred but not paid.

6. Interest on the mortgage payable is $1,875 for the quarter and due July 1.

7. Income tax of $8,000 for the quarter is due in July.

Instructions

(a) Prepare the adjusting journal entries required at June 30, assuming adjusting entries are made quarterly.

(b) Prepare a correct income statement for the quarter ended June 30, 2018.

Calculate and prepare adjusting entries.

Transcribed Image Text:

ROADSIDE TRAVEL COURT LTD. Income Statement Quarter Ended June 30, 2018 Rent revenue Expenses Salaries expense Repair and maintenance expense Advertising expense Depreciation expense Utilities expense Net income $212,000 $80,500 4,300 3,800 2,700 900 -92.200 $119,8o0