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svlad2 [7]
4 years ago
7

During the course of your examination of the financial statements of Trojan Corporation for the year ended December 31, 2018, yo

u come across several items needing further consideration. Currently, net income is $85,000. a. An insurance policy covering 12 months was purchased on October 1, 2018, for $15,000. The entire amount was debited to Prepaid Insurance and no adjusting entry was made for this item in 2018. b. During 2018, the company received a $2,500 cash advance from a customer for services to be performed in 2019. The $2,500 was incorrectly credited to Service Revenue. c. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $2,000 were on hand at December 31, 2018. d. Trojan borrowed $55,000 from a local bank on September 1, 2018. Principal and interest at 12% will be paid on August 31, 2019. No accrual was made for interest in 2018. Required: Using the information in a. through d. above, determine the proper amount of net income as of December 31, 2018. (Amounts to be deducted should be indicated with a minus sign.)
Business
1 answer:
Anna35 [415]4 years ago
6 0

Answer: The proper amount of net income as at December 31, 2018 is $58,750.

Explanation: Trojan Corporation adjusted net income for the year ended 31 December 2018 would be as follows:

Net income (unadjusted) - $85,000

a) Adjust for amortization of prepaid insurance of $1,250 per month ($15,000/12 * 3) - (3,750)

b) Reclassify service revenue to unearned revenue (liability) - (2,500)

c) Reclassify supplies expense to supplies (asset) - (2,000)

d) Adjust for interest expense of $550 per month (12% of $55,000 * 4 / 12) - (2,200)

Net income (adjusted) - $58,750

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