Answer:
Once you make the proper adjustments, the income statement should no longer show a $95,560 profit, instead it should show $55,080
Explanation:
1. Rent of $42,000 was paid on July 1, 2019, for 12 months.
December 31, 2019, adjusting entry on prepaid rent
Dr Rent expense 21,000
Cr Prepaid rent 21,000
So rent expense must increase by $21,000
2. Purchases of supplies during the year totaled $18,000. An inventory of supplies taken at year-end showed supplies on hand of $2,720.
December 31, 2019, adjusting entry on supplies inventory
Dr Supplies expense 15,280
Cr Supplies 15,280
So supplies expense must increase by $15,280
3. The building was purchased three years ago and has an estimated life of 30 years (total accumulated depreciation for 3 years = $21,000)
December 31, 2019, adjusting entry on building depreciation
Dr Depreciation expense 4,200
Cr Accumulated depreciation - building 4,200
So depreciation expense must increase by $4,200
Adjusted income statement should be:
budgeted profit $95,560
- rent expense ($21,000)
- supplies expense ($15,280)
- depreciation expense ($4,200)
net income after adjustments = $55,080
