Question

Question 3:                                                                                                   

The Smart brain is a company that is located in Rawalpindi, Pakistan. The Client Still more operates a private investigating agency called Still more Investigations. Some clients pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Retainer Fees. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31, 2019, follows. (Bear in mind that adjusting entries have already been made for the first 11 months of 2019, but not for December.)

Other Data

  1. Accrued but unrecorded client fees earned at December 31 amount to RS 1,500.
  2. Records show that RS 2,500 of cash receipts originally recorded as Unearned Retainer Fees had been earned as of December
  3. Office supplies on hand at December 31 amount to RS 110.
  4. The company purchased all of its office equipment when it first began business. At that time, the equipment’s estimated useful life was six years (or 72 months).
  5. On October 1, 2019, the company renewed its rental agreement paying RS 1,800 cash for six months’ rent in
  6. On March 1 of the current year, the company paid RS 1,080 cash to renew its 12-month insurance policy.
  7. Accrued but unrecorded salaries at December 31 amount to RS 1,900.
  8. On June 1, 2019, the company borrowed money from the bank by signing a RS 9,000, 8 percent, 12-month note The entire note, plus 12 months’ accrued interest, is due on May 31, 2020.
  9. The company’s CPA estimates that income taxes expense for the entire year is RS 7,500.

STILLMORE SMART BRAIN

UNADJUSTED TRIAL BALANCE DECEMBER 31, 2019

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 RS 40,585

 

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,000

 

Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

205

 

Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,200

 

Unexpired insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

270

 

Office equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54,000

 

Accumulated depreciation: office equipment . . . . . . . . . . . . . . . . . . .

 

 RS 35,250

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

1,400

Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

360

Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

1,750

Note payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

9,000

Unearned retainer fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

3,500

Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

30,000

Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

8,000

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,000

 

Client fees earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

60,000

Office supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

605

 

Depreciation expense: office equipment. . . . . . . . . . . . . . . . . . . . . . .

8,250

 

Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,775

 

Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,010

 

Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,100

 

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

360

 

Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,900

 

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RS 149,260

RS 149,260

Required:

  1. For each of the above numbered paragraphs, prepare the necessary adjusting entry (including an explanation).
  2. Prepare the company’s adjusted trial balance dated December 31,
  3. Using figures from the adjusted trial balance prepared in b, compute net income for the year ended December 31,

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Trial Balance and Adjustement Entries

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