1DC
Question
One year ago, Tyler Stasney founded Swift Classified Ads. Stasney remembers that you took an accounting course while in college and comes to you for advice. He wishes to know how much net income his business earned during the past year in order to decide whether to keep the company going. His accounting records consist of the T-accounts from his ledger, which were prepared by an accountant who moved to another city. The ledger at December 31 follows. The accounts have not been adjusted.
Stasney indicates that at year-end, customers owe the business \(1,600 for accrued service revenue. These revenues have not been recorded. During the year, Swift Classified Ads collected \)4,000 service revenue in advance from customers, but the business earned only \(900 of that amount. Rent expense for the year was \)2,400, and the business used up \(1,700 of the supplies. Swift determines that depreciation on its equipment was \)5,000 for the year. At December 31, the business owes an employee $1,200 accrued salary. Help Swift Classified Ads compute its net income for the year. Advise Stasney whether to continue operating Swift Classified Ads.
Step-by-Step Solution
VerifiedNet income: $33,900
The business can be continued.
Adjusted Trial Balance | ||||||
Particular | Unadjusted Amount | Adjustments | Adjusted Amount | |||
| Dr. | Cr. | Dr. | Cr. | Dr. | Cr. |
|
|
|
|
|
|
|
Cash | $ 5,800 |
| $ 4,000 |
| $ 9,800 |
|
Accounts Receivable | 12,000 |
| 1,600 |
| 13,600 |
|
Prepaid Rent | 2,800 |
|
| $ 2,400 | 400 |
|
Office Supplies | 2,600 |
|
| 1,700 | 900 |
|
Equipment | 36,000 |
|
|
| 36,000 |
|
Accumulated Depreciation – Equipment |
|
|
| 5,000 |
| $ 5,000 |
Accounts Payable |
| $ 21,500 |
|
|
| 21,500 |
Unearned Revenue |
| 4,000 |
| 3,100 |
| 7,100 |
Salaries payable |
|
|
| 1,200 |
| 1,200 |
Common Stock |
| 20,000 |
|
|
| 20,000 |
Dividends | 28,000 |
|
|
| 28,000 |
|
Service Revenue |
| 59,500 |
| 2,500 |
| 62,000 |
Salaries Expense | 17,000 |
| 1,200 |
| 18,200 |
|
Depreciation Expense – Equipment |
|
| 5,000 |
| 5,000 |
|
Rent Expense |
|
| 2,400 |
| 2,400 |
|
Utility Expense | 800 |
|
|
| 800 |
|
Supplies Expense |
|
| 1,700 |
| 1,700 |
|
Total | $ 105,000 | $ 105,000 | $ 15,900 | $ 15,900 | $116,800 | $116,800 |
Income Statement | ||
Particular |
| Amount |
|
|
|
Service revenue |
| $ 62,000 |
Less: Expenses |
|
|
Salaries Expense | $ 18,200 |
|
Depreciation Expense | 5,000 |
|
Rent Expense | 2,400 |
|
Utility Expense | 800 |
|
Supplies Expense | 1,700 | 28,100 |
Net Income |
| $ 33,900 |
The company can continue its business as net income is a positive good figure having around 50% of sales revenue.