Question

During the course of your examination of the financial statements of Trojan Corporation for the year ended December 31, 2015, you come across several items needing further consideration. Currently, net income is $94,000
a. An insurance policy covering 12 months was purchased on October 1, 2015, for $20,400. The entire amount was debited to Prepaid Insurance and no adjusting entry was made for this item in 2015.
b. During 2015, the company received a $3,400 cash advance from a customer for services to be performed in 2016. The $3,400 was incorrectly credited to Service Revenue.
c. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $2,450 were on hand at December 31, 2015.
d. Trojan borrowed $64,000 from a local bank on September 1, 2015. Principal and interest at 9% will be paid on August 31, 2016. No accrual was made for interest in 2015.

Answer 1

Answer:

adjusted income:  92,830

adjusted income:  92,830

adjusted income:  92,830

Explanation:

a) 20,400 contract for a year

20,400 / 12 = 1,700 value per month

from Oct 1st to Dec 31th:  3 months for a total of 5,100 expense

b) we should decrease revenue by 3,400

c) we should reverse 2,450 supplies expense and post under supplies

d) principal x rate x time = interest

64,000 x 0.09 x 4/12 = 1,920 interest expense

94,000 - 5,100 insurance expense + 3,400 unearned revenue +2,450 reversing of supplies expense - 1,920 interest expense

adjusted income:  92,830