Angela Mosley owns Innovative Designs. The trial balance of the firm for January 31, 20X1, the first month of operations,
Angela Mosley owns Innovative Designs. The trial balance of the firm for January 31, 20X1, the first month of operations, is shown below.
1. Complete the worksheet for the month.
2. Prepare an income statement, statement of owner’s equity, and balance sheet. No additional investments were made by the owner during the month.
3. Journalize and post the adjusting entries. Use 3 for the journal page number. Use the following account numbers:
Supplies, 121; Prepaid Advertising, 130; Prepaid Rent, 131; Accumulated Depreciation—Equipment, 142; Supplies
Expense, 517; Advertising Expense, 519; Rent Expense, 520; Depreciation Expense—Equipment, 523.
End-of-the-month adjustments must account for the following items:
1. Supplies were purchased on January 1, 20X1; inventory of supplies on January 31, 20X1, is $1,600.
2. The prepaid advertising contract was signed on January 1, 20X1, and covers a four-month period.
3. Rent of $2,100 expired during the month.
4. Depreciation is computed using the straight-line method. The equipment has an estimated useful life of 10 years with no salvage value.
If the adjusting entries had not been made for the month, by what amount would net income be overstated or understated?
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