The following is the unadjusted trial balance for Rocky Mountain Resort Inc. at its year end, August 31, 2018. The company adjusts its accounts annually.

Additional information:
1. The one-year insurance policy was purchased on May 31 for $12,720.
2. A count of supplies on August 31 shows $1,380 of supplies on hand.
3. The buildings have an estimated useful life of 50 years and straight-line depreciation is applied.
4. The furniture has an estimated useful life of 10 years and straight-line depreciation is applied.
5. Customers must pay a $200 deposit if they want to book a cottage during the peak period. An analysis of these bookings indicates 355 deposits were received and credited to Unearned Revenue. Only 45 of these deposits have not been earned by August 31.
6. Salaries of $1,680 were unpaid at August 31.
7. The August utility bill of $3,120 has not yet been recorded or paid.
8. On August 25, a local business contracted with Rocky Mountain to rent one of the cottages for six months, starting October 1, at a rate of $3,000 per month. An advance payment equal to two months' (October and November) rent was received on August 31 and credited to Rent Revenue.
9. Interest on the mortgage payable is $700 for the month of August and due September 1.
10. Income tax payable is estimated to be $2,000.
11. During the month of May, $5,000 of common shares were issued. (Note: This has already been recorded.)
Instructions
(a) Prepare adjusting journal entries for the year.
(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 August 31.
(d) Prepare (1) an income statement, (2) a statement of changes in equity, and (3) a statement of financial position. Note that there was no change in common shares during the year.
(e) A friend of yours is considering investing in the company and asks you to comment on the results of 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.

Transcribed Image Text:

DebitCredit Cash 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 Repairs and maintenance expense Interest expense Income tax expense $ 38,820 6,990 12,720 70,000 290,00O $ 87,000 57,200 22,880 13,000 71,000 120,00O 40,000 72,000 10,000 497,000o 306,000 75,200 28,250 7,700 $922,880 $922,880