Reference no: EM132225365
Question - Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance:
Account Debit Credit
Cash $430,900
Accounts Receivable $158,000
Supplies $111,000
Equipment $120,000
Accounts Payable $45,900
Unearned Service Revenue $113,600
Common Stock $100,000
Retained Earnings -0-
Service Revenue $649,200
Wage Expense $48,600
Rent Expense $18,000
Utilities Expense $6,200
Administrative Expense $16,000
TOTALS $908,700 $908,700
In addition, Magic has not yet adjusted for the following:
1. The equipment was purchased on March 1 of the current year. It has a 10-year life, 10% salvage value and Magic uses the double declining balance method for depreciation. Magic records depreciation to the nearest full month.
2. On March 1, Magic prepaid $18,000 for 12 months of rent on an office/warehouse. The original entry was recorded as Rent Expense.
3. By December 31st, 60% of the services related to the Unearned Revenues had been performed.
4. Wages of $5,700 should be accrued and are scheduled to be paid on January 2.
5. Supplies of $33,000 were still on hand at year end.
6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible.
Required: To record AJE 2, Magic should do which of the following to record the correct adjustment:
- Credit Prepaid Rent for $3,000
- Debit Rent Expense for $15,000
- Debit Prepaid Rent for $15,000
- Credit Rent Expense for $3,000
Using the information presented above for Magic Cleaning Services, Determine Net Income AFTER all adjustments have been recorded?