Question

Milbank Repairs & Service, an electronics repair store, prepared the following unadjusted trial balance at the end of its first year of operations: Milbank Repairs & Service Unadjusted Trial Balance June 30, 2019, Debit Balances Credit Balances Cash 12,530 Accounts Receivable 83,190 Supplies 20,040 Equipment 474,790 Accounts Payable 19,540 Unearned Fees 22,050 Nancy Townes, Capital 343,000 Nancy Townes, Drawing 16,540 Fees Earned 501,120 Wages Expense 116,260 Rent Expense 88,700 Utilities Expense 63,640 Miscellaneous Expense 10,020 885,710 885,710 For preparing the adjusting entries, the following data were assembled: Fees earned but unbilled on June 30 were $9,070. Supplies on hand on June 30 were $7,410. The depreciation of equipment was estimated to be $12,530 for the year. The balance in unearned fees represented the June 1 receipt in advance for services to be provided. During June $17,420 of the services was provided. Unpaid wages accrued on June 30 were $1,600.
a. Journalize the adjusting entries necessary on June 30, 2019.
b. Determine the revenues, expenses, and net income of Milbank Repairs& Service before the adjusting entries.
c. Determine the revenues, expenses, and net income of Milbank Repairs & Service after the adjusting entries.
d. Determine the effect of the adjusting entries on Nancy Townes, Capital.

Answer 1

Answer:

a. Journalize the adjusting entries necessary on June 30, 2019.

Fees earned but unbilled on June 30 were $9,070.

Dr Accounts receivable 9,070

    Cr Fees earned 9,070

Supplies on hand on June 30 were $7,410.

Dr Supplies expense 12,630

    Cr Supplies 12,630

The depreciation of equipment was estimated to be $12,530 for the year.

Dr Depreciation expense - equipment 12,530

    Cr Accumulated depreciation - equipment 12,530

The balance in unearned fees represented the June 1 receipt in advance for services to be provided. During June $17,420 of the services was provided.

Dr Unearned fees 17,420

    Cr Fees earned 17,420

Unpaid wages accrued on June 30 were $1,600.

Dr Wages expense 1,600

    Cr Wages payable 1,600

b. Determine the revenues, expenses, and net income of Milbank Repairs& Service before the adjusting entries.

Fees Earned $501,120

- Wages Expense $116,260

- Rent Expense $88,700

- Utilities Expense $63,640

- Miscellaneous Expense $10,020

Net income $222,500

c. Determine the revenues, expenses, and net income of Milbank Repairs & Service after the adjusting entries.

Fees Earned $527,610  

- Wages Expense $117,860

- Rent Expense $88,700

- Utilities Expense $63,640

- Depreciation expense $12,530

- Miscellaneous Expense (including supplies) $22,650

Net income $222,230

d. Determine the effect of the adjusting entries on Nancy Townes, Capital.

Nancy Townes is the owner of Milbank Repairs & Service, and since this is a sole proprietorship (she is the sole owner), the retained earnings account does not exist. So any profits or losses will increase or decrease her capital account respectively. Since after the adjustments the net income decreased by $270, her capital account will also decrease by $270.