Exercise 2–81.Prepaid insurance ($12,000 x 30/36)10,000Insurance expense10,0002.Depreciation expense15,000Accumulated depreciation 15,0003.Salaries expense18,000Salaries payable18,0004.Interest expense ($200,000 x 12% x 2/12)4,000Interest payable4,0005.Deferred rent revenue1,500Rent revenue (1/2 x $3,000)1,500Exercise 2–111.Insurance expense ($6,000 x 3/12)1,500Prepaid insurance1,5002.Interest expense ($80,000 x 8% 3/12)1,600Interest payable1,6003.Deferred rent revenue ($24,000 x 3/12)6,000Rent revenue 6,0004.Depreciation expense ($20,000 x 3/12)5,000Accumulated depreciation - building5,0005.Salaries and wages expense 16,000Salaries and wages payable16,000Exercise 2–12Requirement 1BLUEBOY CHEESE CORPORATIONIncome StatementFor the Year Ended December 31, 2018Sales revenue $800,000Cost of goods sold 480,000
Gross profit 320,000Operating expenses:Salaries$120,000Rent30,000Depreciation 60,000Advertising 5,000Total operating expenses 215,000Operating income 105,000Other expense:Interest 4,000Net income $101,000Exercise 2–12 (continued)BLUEBOY CHEESE CORPORATIONBalance SheetAt December 31, 2018AssetsCurrent assets: Cash $ 21,000Accounts receivable 300,000Inventory50,000Prepaid rent 10,000Total current assets 381,000Property and equipment:Office equipment $600,000Less: Accumulated depreciation (250,000)350,000Total assets $731,000Liabilities and Shareholders' EquityCurrent liabilities:Accounts payable $ 60,000Salaries payable 8,000Interest payable Note payable 2,00060,000Total current liabilities 130,000 Shareholders’ equity:Common stock $400,000Retained earnings 201,000*Total shareholders’ equity 601,000Total liabilities and shareholders’ equity $731,000*Beginning balance of $100,000 plus net income of $101,000.
Exercise 2–12 (concluded)Requirement 2December 31, 2018Sales revenue800,000Income summary800,000Income summary699,000Cost of goods sold480,000Salaries expense120,000Rent expense30,000Depreciation expense60,000Interest expense4,000Advertising expense5,000Income summary ($800,000 – 699,000)101,000Retained earnings101,000Exercise 2–17Unadjusted net income$30,000Adjustments:a. Only $2,000 in insurance should be expensed+ 4,000b. Sales revenue overstated– 1,000c. Supplies expense overstated + 750d. Interest expense understated ($20,000 x 12% x 3/12)– 600Adjusted net income$33,150Exercise 2–18Stanley and Jones Lawn Service CompanyIncome StatementFor the Year Ended December 31, 2018Sales revenue (1)$315,000Operating expenses:Salaries $180,000Supplies (2)24,500Rent 12,000Insurance (3)4,000Miscellaneous (4)21,000Depreciation 10,000Total operating expenses 251,500Operating income 63,500Other expense:Interest (5)1,500
Net income $62,000$320,000 cash collected less $5,000 decrease in accounts receivable.Cash 320,000Accounts receivable (decrease in account)5,000Sales revenue (to balance)315,000$25,000 cash paid for the purchase of supplies less $500 increase in supplies.Supplies expense (to balance) 24,500Supplies (increase in account)500Cash 25,000Exercise 2–18 (concluded)$6,000 cash paid for insurance less $2,000 ending balance in prepaid insurance.Insurance expense (to balance) 4,000Prepaid insurance (increase in account)2,000Cash 6,000$20,000 cash paid for miscellaneous expenses plus increase in accrued liabilities.