The following is the unadjusted trial balance for Rainbow Lodge Ltd. at its year end, May 31, 2018. The company adjusts its accounts monthly.

Additional information:
1. An annual insurance policy was purchased for the first time on October 1, 2017, for $10,920 cash.
2. A count of supplies shows $1,340 of supplies on hand on May 31.
3. The buildings have an estimated useful life of 20 years and straight-line depreciation is applied.
4. The furniture has an estimated useful life of five years and straight-line depreciation is applied.
5. Customers must pay a $100 deposit if they want to book a room in advance during the peak period. An analysis of these bookings indicates that 175 deposits were received and credited to Unearned Revenue. By May 31, 25 of the deposits were earned.
6. On May 25, a local business contracted with Rainbow Lodge to rent one of its housekeeping units for four months, starting June 1, at a rate of $2,800 per month. An advance payment equal to one month's rent was paid on May 25 and credited to Rent Revenue.
7. On May 31, Rainbow Lodge has earned $1,780 of rent revenue from customers who are currently staying at the inn. The customers will pay the amount owing only when they check out in early June.
8. Salaries of $1,590 are unpaid at May 31.
9. Interest on the mortgage payable is $735 for the month of May and due June 1.
10. The May utility bill of $2,240 has not yet been recorded or paid.
11. Additional income tax is estimated to be $1,000.
Instructions
(a) Prepare adjusting journal entries for the month.
(b) Set up T accounts, enter any opening balances, and post the adjusting journal entries prepared in part (a).
(c) Prepare an adjusted trial balance at May 31.
(d) Prepare (1) an income statement, (2) a statement of changes in equity, and (3) a statement of financial position for the year. Note that $4,000 of common shares were issued during the month of May.
(e) A friend of yours is considering investing in the company and asks you to comment on the company's operations and financial position. Is the company performing well or not? Does the financial position look healthy or weak? Use specific information from the financial statements to support your answer.
Prepare and post closing entries; prepare postclosing trial balance.

Transcribed Image Text:

DebitCredit Cash Accounts receivable Supplies Prepaid insurance Land Buildings Accumulated depreciation-buildings Furniture Accumulated depreciation-furniture Accounts payable Unearned revenue Mortgage payable, due 2021 Common shares Retained earnings Dividends declared Rent revenue Salaries expense Utilities expense Depreciation expense Interest expense Insurance expense Advertising expense Income tax expense $ 6,400 11,8oo 4,88o 4,550 106,370 168,00o S 24,500 33,600 19,600 8,140 17,500 126.00o 60,000 41,58o 2,00O 200.320 98,70o 23,870 13,860 9,240 6,370 1,000 $497,640 $497.640