Question

Vedula Advertising was founded by MuraliVedula in January 2015. On the next page are both the adjusted and unadjusted trial balances as of December 31, 2017.

VEDULA ADVERTISING TRIAL BALANCE DECEMBER 31, 2017
	Unadjusted		Adjusted
	Dr.	Cr.	Dr.	Cr.
Cash	\( 11,000		\) 11,000
Accounts Receivable	16,000		19,500
Prepaid Insurance	9,400		6,500
Supplies	3,350		1,790
Equipment	60,000		60,000
Accumulated Depreciation—Equipment		\( 25,000		\) 30,000
Notes Payable		8,000		8,000
Accounts Payable		2,000		2,000
Interest Payable		0		560
Unearned Service Revenue		5,000		3,100
Salaries and Wages Payable		0		820
Common Stock		20,000		20,000
Retained Earnings		5,500		5,500
Dividends	10,000		10,000
Service Revenue		57,600		63,000
Salaries and Wages Expense	9,000		9,820
Insurance Expense			1,560
Interest Expense			560
Depreciation Expense			5,000
Supplies Expense			2,900
Rent Expense	4,350		4,350
	\(123,100	\)123,100	\(132,980	\)132,980

Instructions

1. Journalize the annual adjusting entries that were made.
2. Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31.
3. Identify which accounts should be closed on December 31.
4. If the note has been outstanding 10 months, what is the annual interest rate on that note?
5. If the company paid $10,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Short answer

a. The adjusted journal's total debit and credit sides al are $16,240.

b. Net income = $38,810

Retained earnings = $34,310

Balance sheet = $68,790

c. A total of 8 accounts need to be closed, like Salaries and Wages Expenses, rent expenses, and service revenue.

d. Annual interest8.4%

e. Total salaries payable is$1,500.

Step-by-step solution

Meaning of Trial Balance

The trial balance is an accounting worksheet that is utilized in bookkeeping. Each record's balance is considered to create averages for the credit and debit account columns, which are always equal.

(a) Preparing for adjusting entries

Date	Particulars	Debit ($)	Credit ($)
Dec. 31, 2017	Accounts receivables	3,500
	Service revenue		3,500
Dec. 31, 2017	Insurance expense	1,560
	Prepaid insurance		1,560
Dec. 31, 2017	Supplies expense	2,900
	Supplies		2,900
Dec. 31, 2017	Depreciation expense	5,000
	Accumulated depreciation- Building		5,000
Dec. 31, 2017	Interest expense	560
	Interest payable		560
Dec. 31, 2017	Salaries and wages expense	820
	Salaries and wages payable		820
Dec. 31, 2017	Unearned service revenue	1,900
	Service revenue		1,900
		$16,240	$16,240

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

Particular	Amount ($)	Amount ($)
Revenues:
Service revenue		63,000
Less: Expenses
Salaries and wages	9,820
Insurance	1,560
Depreciation	5,000
Rent	4,350
Interest	560
Supplies	2,900
Total expense		24,190
Net income		38,810

Retained earnings
Particular	Amount ($)
Retained earnings, July 1	$5,500
Add: Net income	38,810
Less: Dividends	10,000
Retained earnings	$34,310

Balance sheet
Particular	Amount ($)	Amount ($)
Assets
Current assets:
Cash	$11,000
Account receivable	19,500
Supplies	6,500
Prepaid Insurance	1,790
Total current asset		38,790
Property, plant, and equipment	60,000
Less: Accumulated depreciation	30,000	30,000
Total assets		68,790
Liabilities and Stockholder’s equity
Current liabilities
Note payable	$8,000
Accounts payable	2,000
Unearned service revenue	3,100
Salaries and wages payable	820
Interest payable	560
Total current liabilities		14,480
Stockholder’s equity
Common stock	20,000
Retained earnings	34,310
Total stockholders’ equity		54,310
Total liabilities and stockholder’s equity		$68,790

(c) Identifying the account that needs to be closed

The following accounts need to be closed:

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

(d) Determining the annual interest

Interest is $56 per month or 0.7% of the note payable ($56 / $8,000).
0.7% X 12 = 8.4% interest per year.

Calculating interest per year

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(e) Determining the balance in salaries and wages payable

Salaries and Wages Expense	$9,820
Less: Salaries and Wages Payable 12/31/17	$820
	$9,000

Total payments, $10,500 - $9,000 = $1,500 Salaries Payable on 12/31/16.