USA Car Rental Service was organized to provide car rental service at the airport. It has just

Question:

USA Car Rental Service was organized to provide car rental service at the airport. It has just completed its second year of business. Its trial balance follows.

The following information is also available:
a. To obtain space at the airport, USA paid two years€™ rent in advance when it began the business.
b. An examination of insurance policies reveals that $2,000 expired during the year.
c. To provide regular maintenance for the vehicles, USA deposited $13,620 with a local garage. An examination of maintenance invoices reveals charges of $7,890 against the deposit.
d. An inventory of spare parts shows $2,170 on hand.
e. USA depreciates all of its cars at the rate of 12.5 percent per year. No cars were purchased during the year.
f. A payment of $2,000 for one full year€™s interest on notes payable is now due.
g. Unearned Rental Service Revenue on June 30 includes $20,325 for cars that customers prepaid but have not yet been rented.

REQUIRED
1. Determine the adjusting entries and enter them in the general journal (Page 14).
2. Open ledger accounts for the accounts in the trial balance plus the following: Interest Payable (213); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation Expense€”Cars (517); Maintenance Expense (518); and Interest Expense (519). Record the balances shown in the trial balance.
3. Post the adjusting entries from the general journal to the ledger accounts, showing proper references.
4. Prepare an adjusted trial balance, an income statement, a statement of owner€™s equity, and a balance sheet. The owner made no investments during the period.
5. What effect do the adjusting entries have on the incomestatement?