Demonstration Problem At the end of its first month of operations, Watson Answering Service has the following unadjusted trial balance. WATSON ANSWERING SERVICE AUGUST 21,2005 Trial Balance Debit Credit Cash 5,400 Accounts Receivable 2,800 Prepaid Insurance 2,400 Supplies 1,300 Equipment 60,000 Notes Payable 40,000 Accounts Payable 2,400 Ray Watson, Capital 30,000 Ray Watson, Drawing 1,000 Service Revenue 4,900 Salaries Expense 3,200 Utilities Expense 800 Advertising Expense 400 __________ __________ $77,300 $77,300 Other data consist of the following: 1. Insurance expires at the rate of $200 per month. 2. There are $1,000 of supplies on hand at August 31. 3. Monthly depreciation on the equipment is $900. 4. Interest of $500 on the notes payable has accrued during August. Instructions (a) Prepare a work sheet. (b) Prepare a classified balance sheet assuming $35,000 of the notes payable are long-term.
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