Determining Adjusting entries and tracing their effects to Financial statements

p12. USA Car Rental Service, Inc., was organized to provide car rental service at the airport. It has just completed its second year of business. Its trial balance follows.

 

$763,338                                                                                                                                                                                                                                      (Continued)

 

 

 

 

 

 

 

 

 

 

 

UsA Car Rental service, Inc. trial Balance

June 30, 2014

 

Cash (111)	15,708	Â
Accounts Receivable (113)	19,830
Prepaid Rent (117)	18,000
Prepaid Insurance (118)	6,400
Prepaid Maintenance (119)	13,620
Spare Parts (140)	12,200
Cars (148)	270,000
Accumulated Depreciation—Cars (149)	Â	Â	35,000
Notes Payable (211)	Â	Â	78,000
Unearned Rental Service Revenue (212)	Â	Â	42,000
Common Stock (311)	Â	Â	25,000
Retained Earnings (312)	Â	Â	41,567
Dividends (313)	30,000	Â	Â
Rental Service Revenue (411)	Â	Â	492,151
Gas and Oil Expense (510)	104,900	Â	Â
Salaries Expense (511)	206,360	Â	Â
Advertising Expense (513)	16,700	Â	Â
Â	713,718	Â	713,718

 

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 pur- chased 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 cus- tomers prepaid but have not yet been rented.

h.     Federal income taxes for the year are estimated to be $13,870.

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—Cars (517); Maintenance Expense (518); Interest Expense (519); and Income Taxes Expense (520). 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 retained earn- ings, and a balance sheet.

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