End-of-Period Adjustments and Closing - At December 31, 2004, the accountant at Puget Sounds, a recording studio, has entered all the firm’s transactions into the accounting system and is beginning the end-of-period process. He asks your help in identifying the necessary adjusting entries. In the first column on page F121, the accountant has listed the company’s account balances before considering adjustments. In addition, he has provided other information that may cause you to recommend that certain adjusting entries be made.

1. $4,350 of wages earned by employees during December have not been recorded or paid.

2. The prepaid insurance is for a 3-year policy purchased on the first day of the year just ending.

3. Unearned revenues are for contracts for the use of studio facilities. $12,000 of this amount has been earned by December 31.

4. A count at year-end shows that $10,050 of supplies remain on hand.

5. The note payable was issued on October 1, 2004. Interest accumulates in the amount of $3,000 per month. Interest has not yet been recorded for December.

6. Depreciation on equipment is $1,500 per month. Depreciation on buildings is $600 per month. No depreciation has yet been recorded for the quarter (3 months) just ended.

Account Balance Before Adjustment	Adjustments	Account Balance After Adjustment
Cash	$52,500
Accounts receivable	35,250
Supplies	19,200
Prepaid insurance	4,050
Equipment	468,000
Accumulated depreciation—equipment	129,000
Buildings	649,500
Accumulated depreciation—buildings	-85,500
Land	58,500
Total assets	$1,072,500
Unearned revenues	$36,000
Accounts payable	27,900
Interest payable	6,000
Wages payable	0	(1)+ 4,350	4,350
Notes payable	420,000
Common stock	300,000
Retained earnings (a)	224,100
Total liabilities & stockholders’ equity	$1,014,000
Rent revenues	$100,500
Wages expense	36,000	(1) -4,350	40,350
Supplies expense	0
Insurance expense	0
Interest expense	6,000
Depreciation expense	0
Net income	$58,500
(a) Net income has not been added for the current year.

Required

A. Identify any adjustments you believe necessary and enter their effects in the adjustments column of the table above. Code each adjustment with the number to which it relates. The first item is completed for you as an example.

B. Record the proper ending amount for each account in the final column.

C. On the table you have completed, why doesn’t the total of all asset accounts equal the total of all liability and equity accounts?

D. What additional step(s) needs to be performed before financial statements can be prepared? Explain how this will solve the imbalance identified in part (C) above.

E. By what amount (and percentage) would net income have been misstated if no adjusting entries had been recorded by this company?