Question

The following are the trial balance and the other information related to Yorkis Perez, a consulting engineer.

YORKIS PEREZ, CONSULTING ENGINEER . TRIAL BALANCE DECEMBER 31, 2017

	Debit	Credit
Cash	\( 29,500
Accounts Receivable	49,600
Allowance for Doubtful Accounts		\) 750
Supplies	1,960
Prepaid Insurance	1,100
Equipment	25,000
Accumulated Depreciation—Equipment		6,250
Notes Payable		7,200
Owner’s Capital		35,010
Service Revenue		100,000
Rent Expense	9,750
Salaries and Wages Expense	30,500
Utilities Expenses	1,080
Office Expense	720
	\(149,210	\)149,210

1. Fees received in advance from clients \(6,000, which were recorded as revenue.
2. Services performed for clients that were not recorded by December 31, \)4,900.
3. Bad debt expense for the year is \(1,430.
4. Insurance expired during the year \)480.
5. Equipment is being depreciated at 10% per year.
6. Yorkis Perez gave the bank a 90-day, 10% note for \(7,200 on December 1, 2017.
7. Rent of the building is \)750 per month. The rent for 2017 has been paid, as has that for January 2018, and recorded as Rent Expense.
8. Office salaries and wages earned but unpaid December 31, 2017, \(2,510.

Instructions

1. From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2017. (Omit explanations.)
2. Prepare an income statement for 2017, a statement of owner’s equity, and a classified balance sheet. Yorkis Perez withdrew \)17,000 cash for personal use during the year.

Short answer

1. Total debit and credit side of journal is $18,570
2. Net Income = $56,620

Owner’s equity Statement = $85,630

Balance sheet total = $101,400

Step-by-step solution

Meaning of Trial Balance

A worksheet used in bookkeeping is the trial balance. In this, each record’s balance is included to form aggregates for the credit and debit account columns that are always equal.

(a) Preparing Journal entry

Date	Particulars	Debit ($)	Credit ($)
Dec. 31	Service Revenue	6,000
	Unearned Service Revenue		6,000
31	Accounts Receivables	4,900
	Service revenue		4,900
31	Bad Debt expense	1,430
	Allowance for doubtful accounts		1,430
31	Insurance expense	480
	Prepaid Insurance		480
31	Depreciation expense	2,500
	Accumulated depreciation- Equipment $\left(\$25,000\times 10\%\right)$		2,500
31	Prepaid Rent	750
	Rent expense		750
31	Salaries and Wages expense	2,510
	Salaries and Wages Payable		2,510
		$18,570	$18,570

(b) Preparing an Income Statement, a statement of owner’s equity, and a classified balance sheet

Preparing Income Statement

PEREZ CONSULTING ENGINEERS Income Statement

Service revenue $\left(\$100,000-\$6,000+\$4,900\right)$	$98,900
Expenses
Salaries and wages expense $\left(\$30,500+\$2,510\right)$	$33,010
Rent expense $\left(\$9,750-\$750\right)$	9,000

Depreciation expense	2,500
Bad debt expense	1,430
Utilities expense	1,080
Office expense	720
Insurance expense	480
Interest expense	60
Total expenses	48,280
Net Income	$50,620

Preparing statement of Owner’s Capital

YORKIS PEREZ CONSULTING ENGINEERS .

Owner’s capital, January 1, 2017	$52,010
Add: Net income .	50,620
Less: withdrawals	(17,000)
Owner’s capital, December 31, 2017	$85,630

Workings Note:

Calculation of Owners capital on January 1, 2017

Owners’ capital trial balance	$35,010
Withdrawals during year	17,000
Owner’s capital as of January 1, 2017	$52,010

Preparing Balance Sheet

PEREZ CONSULTING ENGINEERS . Balance Sheet

Assets .
Current assets
Cash $29,500
Accounts receivable$\left(\$49,600+\$4,900\right)$$54,500
Less: Allowance for doubtful accounts 2,180 52,320 $\left(\$750+\$1,430\right)$
Supplies 1,960
Prepaid Insurance $\left(\$1,100-\$480\right)$ 620
Prepaid rent 750
Total current assets	$85,150
Equipment 25,000
Less: Accumulated depreciation 8,750 $\left(\$6,250+\$2,500\right)$	16,250
Total assets	$101,400

Liabilities and Owner’s equity .
Current liabilities
Notes payable $7,200
Unearned service revenue 6,000
Salaries and wages payable 2,510
Interest payable 60	$15,770
Common stock $88,630	$85,630
Total liabilities and owners’ equity	$101,400