Angela Mosley owns Innovative Designs. The trial balance of the firm for January 31, 20X1, the first month of operations, is shown below.

INSTRUCTIONS 

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.

Analyze: 

If the adjusting entries had not been made for the month, by what amount would net income be overstated or understated?

Transcribed Image Text:

Cash 1 2 Accounts Receivable 3 Supplies 4 Prepaid Advertising Prepaid Rent 01 5 ACCOUNT NAME 6 Equipment 7 Accumulated Depreciation-Equipment Accounts Payable 8 9 Angela Mosley, Capital 10 Angela Mosley, Drawing Fees Income 11 12 Advertising Expense 13 Depreciation Expense-Equipment 14 Rent Expense 15 Salaries Expense 16 Supplies Expense 17 Utilities Expense Totals 18 19 Innovative Designs Worksheet (Partial) Month Ended January 31, 20X1 DEBIT TRIAL BALANCE 36 500 00 13 600 00 975000 12 400 00 25 200 00 33 600 00 800000 10 70000 190000 151 650 00 CREDIT 16 550 00 61 000 00 74 10 000 151 650 00