Determining Adjusting entries and tracing their effects to Financial statements

p4. Kitz Limo Service, Inc., was organized to provide limousine service between the airport and various suburban locations. It has just completed its second year of business. Its trial balance follows.

Kitz Limo service, Inc. trial Balance June 30, 2014

 

 

Cash (111)	9,812	Â
Accounts Receivable (113)	14,227
Prepaid Rent (117)	12,000
Prepaid Insurance (118)	4,900
Prepaid Maintenance (119)	12,000
Spare Parts (140)	11,310
Limousines (148)	200,000
Accumulated Depreciation—Limousines (149)	Â	Â	25,000
Notes Payable (211)	Â	Â	45,000
Unearned Passenger Service Revenue (212)	Â	Â	30,000
Common Stock (311)	Â	Â	30,000
Retained Earnings (312)	Â	Â	48,211
Dividends (313)	20,000	Â	Â
Passenger Service Revenue (411)	Â	Â	428,498
Gas and Oil Expense (510)	89,300	Â	Â
Salaries Expense (511)	206,360	Â	Â
Advertising Expense (513)	26,800	Â	Â
Â	606,709	Â	606,709

 

The following information is also available:

a.     To obtain space at the airport, Kitz paid two years’ rent in advance when it began the business.

b.     An examination of insurance policies reveals that $2,800 expired during the year.

c.     To provide regular maintenance for the vehicles, Kitz deposited $12,000 with a local garage. An examination of maintenance invoices reveals charges of $10,944 against the deposit.

d.    An inventory of spare parts shows $1,902 on hand.

e.     Kitz depreciates all of its limousines at the rate of 12.5 percent per year. No limou- sines were purchased during the year. (Round to the nearest dollar.)

f.      A payment of $1,500 for one full year’s interest on notes payable is now due.

g.     Unearned Passenger Service Revenue on June 30  includes  $17,815  for tickets that employers purchased for use by their executives but which have not yet been redeemed.

h.     Federal income taxes for the year are estimated to be $13,250.

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: Inter- est Payable (213); Income Taxes Payable (214); Rent Expense (514); Insurance Expense (515); Spare Parts Expense (516); Depreciation Expense—Limousines (517); Maintenance Expense (518); Interest Expense (519); and Income Taxes Expense (520). Record the balances shown in the trial balance.

(Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 retained earn- ings, and a balance sheet.

5.    aCCounting ConneCtion ▶ What effect do the adjusting entries have on the income statement?