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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Although you printed the trial balance and financial statements to get an idea of how All About You Spa is doing financially, some accounts are not accurate. You need to make adjusting entries to provide a clearer picture of how the spa is doing.

HOW TO COMPUTE THE ADJUSTMENTS

Compute the adjustment amounts for the month of October, using the following information:

Adjustment (a): Liability insurance for six months was purchased during the first days of the month. That protection for one month has been used or expended.

Adjustments (b) and (c): Office equipment and spa equipment have depreciated. That means they have been in use for a month and have, for accounting purposes, lost some usefulness. This is an estimate, of course, which allows us to expense the depreciation and, in effect, lowers the book value (value on the books) of both types of equipment.

(b): The owner, Anika Valli, purchased office equipment totaling $1,345. The office equipment will be depreciated using the straight-line method. The office equipment is estimated to have a salvage (trade-in) value of $550 and is expected to last five years. Remember, you want to compute the depredation for one month, not one year.

(c): Anika Valli invested spa equipment totaling $9,125 in the business ($3,575 of her own spa equipment plus $5,550 of new spa equipment purchased). The spa equipment will be depreciated using the straight-line method. The spa equipment is estimated to have a trade-in, or salvage, value of $125 and is expected to last five years. Remember, you want to compute the depreciation for one month, not one year.

Adjustment (d): All About You Spa owes one day of wages to its employees. The month's total wages paid in October amounted to $8,300. The employees worked 21 days but were paid for only 20 days because the payday for the last day worked is in the next pay period.

Adjustments (e) and (f): After a count of supplies at the end of the month, All About You Spa has $125 remaining in Office Supplies and $255 remaining in Spa Supplies.

Required

  1. 1. Complete a work sheet for the month (if required by your instructor).
  2. 2. Journalize the adjusting entries in the general journal.
  3. 3. Post the adjusting entries to the general ledger accounts.
    • Ignore this step if you are using CLGL.
  4. 4. Prepare an adjusted trial balance as of October 31, 20--.
  5. 5. Prepare an income statement (after adjustment) for the month ended October 31, 20--.
  6. 6. Prepare a statement of owner’s equity (after adjustment) for the month ended October 31, 20--.
  7. 7. Prepare a balance sheet (after adjustment) as of October 31, 20--.

1.

To determine

Indicate the given adjustments and complete the worksheet for ABY Spa for the month ended October 31, 20--.

Explanation

Worksheet: Worksheet is an accounting tool that help accountants to record adjustments and up-date balances required to prepare financial statements. Worksheet is a central place where trial balance, adjustments, adjusted trial balance, income statement, and balance sheet are presented...

2.

To determine

Prepare adjusting journal entries for ABY Spa for the month ended October 31, 20--.

3.

To determine

Post the adjusting entries journalized in Part (2) in the ledger accounts of general ledger.

4.

To determine

Prepare an adjusted trial balance for ABY Spa as at October 31, 20--, based on the account balances derived in Part (3).

5.

To determine

Prepare an income statement of ABY Spa for the month ended October 31, 20--, based on the account balances derived in Part (3).

6.

To determine

Prepare a statement of owners’ equity of ABY Spa, based on the account balances derived in Part (3), and net income computed in Part (5).

7.

To determine

Prepare a balance sheet for ABY Spa, based on the account balances derived in Part (3), and capital of the owner from the statement of owners’ equity prepared in Part (6).

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