Question

Before making month-end adjustments, net income of Bobwhite Company was $232,500 for March. Adjusting entries are necessary for the following items:
Depreciation for the month of March: $4,400.
Rental income accrued during March, tenant to pay in April: $910.
Supplies used in March: $310.
Fees earned in March that had been collected in advance: $3,700.

After recording these adjustments, net income for March is:_________

a. $112,400.
b. $113,620.
c. $117,000.
d. $110,800.

Answer 1

Answer:

Net income after adjustment          $225,000    

Explanation:

The various adjustments are effected below:

                                                                         $                        Note

Net income before adjustment                  232,500

Depreciation                                                (4,400)                    1

Rental income                                                910                        2

Supplies                                                           (310)                     3

Fees earned                                                   (3,700)                  4

Net income after adjustment                       225,000    

Notes

1 Depreciation represents a consumption of asset hence it is an expense which reduces profit .So, it deducted

2. Rental income accrued implies income earned but not received. So we need to record it for the period it was earned, hence we add it.

3. Supplies used represents consumption of assets, i.e an expense. So, we  deduct it from the income.

4. The income received in advance represents unearned income . This would be deducted from the net income