Use of Account Balances as a Basis for Adjustments LoriMatlock operates a graphic arts business. A list of accounts on June 30, 2010, before recording any adjustments, appears as follows:
Cash ..........................................$ 7,000
Prepaid Rent ................................. 18,000
Supplies ....................................... 15,210
Office Equipment ............................ 46,120
Accumulated Depreciation-Equipment . 4,000
Accounts Payable ............................ 1,800
Notes Payable ................................ 2,000
Capital Stock ................................. 50,000
Retained Earnings ........................... 24,350
Dividends .................................... 8,400
Revenue ...................................... 46,850
Utilities Expense ............................ 2,850
Salaries Expense ............................ 19,420
Advertising Expense ....................... 12,000
Other Data
a. The monthly rent is $600.
b. Supplies on hand on June 30, 2010, amount to $1,290.
c. The office equipment was purchased on June 1, 2009. On that date, it had an estimated useful life of ten years and a salvage value of $6,120.
d. Interest owed on the note payable but not yet paid amounts to $50.
e. Salaries of $620 are owed but unpaid to employees at the end of the month.
Required
1. For each of the items of other data,
(a) through (e), identify and analyze the necessary adjustments at June 30, 2010.
2. Compute the net increase or decrease in net income for the month from the recognition of the adjustments in (1). (Ignore income taxes.)
3. Note the balance in Accumulated Depreciation-Equipment of $4,000. Explain why the account contains a balance of $4,000 on June 30, 2010.