Question

Rolling Hills Golf Inc. was organized on July 1, 2017. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown below.

ROLLING HILLS GOLF INC.TRIAL BALANCESEPTEMBER 30, 2017
	Unadjusted		Adjusted
	Dr.	Cr.	Dr.	Cr.
Cash	\( 6,700		\) 6,700
Accounts Receivable	400		1,000
Prepaid Rent	1,800		900
Supplies	1,200		180
Equipment	15,000		15,000
Accumulated Depreciation—Equipment				\( 350
Notes Payable		\) 5,000		5,000
Accounts Payable		1,070		1,070
Salaries and Wages Payable				600
Interest Payable				50
Unearned Rent Revenue		1,000		800
Common Stock		14,000		14,000
Retained Earnings		0		0
Dividends	600		600
Service Revenue		14,100		14,700
Rent Revenue		700		900
Salaries and Wages Expense	8,800		9,400
Salaries and Wages Expense	900		1,800
Rent Expense			350
Depreciation Expense			1,020
Supplies Expense			470
Utilities Expenses			50
Interest Expense	\(35,870	\)35,870	\(37,470	\)37,470

Instructions

1. Journalize the adjusting entries that were made.
2. Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30.
3. Identify which accounts should be closed on September 30.
4. If the note bears interest at 12%, how many months has it been outstanding?

Short answer

a. The total debit and credit side of the journal is $3,720

b. Net income =$2,510

Retained earnings = $1,910

Balance sheet = $23,430

c. A total of 9 accounts need to be closed, like Salaries and Wages Expenses, rent revenue, and sales revenue.

d. Outstanding = 1 month.

Step-by-step solution

Meaning of Trial Balance

A trial balance is a worksheet prepared with the balances of ledger accounts and shows the accounts' arithmetical accuracy.

(a) Preparing adjusting entries

Date	Particulars	Debit ($)	Credit ($)
Sep. 30, 2017	Accounts receivables	600
	Sales revenue		600
Sep. 30, 2017	Rent expense	900
	Prepaid rent		900
Sep. 30, 2017	Supplies expense	1,020
	Supplies		1,020
Sep. 30, 2017	Depreciation	350
	Accumulated depreciation		350
Sep. 30, 2017	Salary expense	600
	Outstanding salary		600
Sep. 30, 2017	Interest expense	50
	Interest payable		50
Sep. 30, 2017	Unearned rent revenue	200
	Rent revenue		200
		$3,720	$3,720

(b) Preparing anincome statement, retained earnings statement and classified balance sheet

Income Statement
Particular	Amount ($)
Service revenue	14,700
Rent revenue	900
Rent expense	(1,800)
Depreciation expenses	(350)
Supplies expenses	(1,020)
Utility expense	(470)
Salary and wages	(9,400)
Interest expenses	(50)
Net income	$2,510

Retained earnings
Particular	Amount ($)
Retained earnings, July 1	$0
Net income	2,510
Dividends	(600)
Retained earnings	$1,910

Balance Sheet
Particular	Amount ($)	Amount ($)
Assets
Current asset
Cash	6,700
Prepaid rent	900
Supplies	180
Accounts receivables	1,000
Total current asset		8,780
Equipment	15,000
Less: Accumulated depreciation	350	14,650
Total assets		$23,430
Liabilities and Stockholder’s equity
Current liabilities
Notes payables	5,000
Accounts payables	1,070
Unearned rent revenue	800
Salaries and wages payable	600
Interest payable	50	$7,520
Stockholder’s equity
Common stock	14,000
Retained earnings	1,910	15,910
Total liabilities and stockholder’s equity		$23,430

(c) Identifying accounts that need to be closed

The following accounts would be closed:

• Service Revenue
• Rent Revenue
• Salaries and Wages Expense
• Rent Expense
• Utility Expenses
• Depreciation Expense
• Supplies Expense
• Interest Expense
• Dividends.

(d) Determiningoutstanding months

$\begin{array}{rcl}\mathit{I}\mathit{n}\mathit{t}\mathit{e}\mathit{r}\mathit{e}\mathit{s}\mathit{t}\mathbf{}\mathit{d}\mathit{u}\mathit{e}& \mathbf{=}& \frac{\mathbf{I}\mathbf{n}\mathbf{t}\mathbf{e}\mathbf{r}\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{}\mathbf{p}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{m}\mathbf{o}\mathbf{n}\mathbf{t}\mathbf{h}\mathbf{\times }\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{m}\mathbf{o}\mathbf{n}\mathbf{t}\mathbf{h}}{\mathbf{R}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{t}\mathbf{e}\mathbf{r}\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{\times }\mathbf{N}\mathbf{o}\mathbf{t}\mathbf{e}\mathbf{s}\mathbf{}\mathbf{p}\mathbf{a}\mathbf{y}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}}\\ & \mathbf{=}& \frac{\mathbf{50}\mathbf{\times }\mathbf{12}}{\mathbf{12}\mathbf{\%}\mathbf{\times }\mathbf{5}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \frac{\mathbf{600}}{\mathbf{600}}\\ & \mathbf{=}& \mathbf{1}\mathbf{}\mathit{m}\mathit{o}\mathit{n}\mathit{t}\mathit{h}\\ & & \end{array}$