Reference no: EM131805520
Problem
Ezra Inc. prepared the following condensed income statement using the cash basis of accounting:
EZRA INC.
Income Statement, Cash Basis
Year Ended December 31, 2015
Service revenue............................................................................................ $820,000
Expenses....................................................................................................... 640,000
Profit........................................................................................................ ... $180,000
Additional data:
Depreciation on a company automobile for the year amounted to $9,000. This amount is not included in the expenses above.On January 1, 2015, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above.Service revenue does not include $50,000 of services provided on account in 2015 for which payment will be received in 2016. It does, however, include $20,000 collected in 2015 for services to be performed in 2016.Expenses do not include $50,000 of advertising expenses that were incurred in 2015 but won't be paid for until 2016.The expenses do not include salaries in the amount of $2,500 owed to employees for the work done between the last time they were paid and year end.The expenses include property taxes covering the period from July 1, 2015 to June 30, 2016 in the total amount of $1,200 that were paid in 2015.On March 1, 2015 Ezra purchased $60,000 of equipment. It paid $15,000 in cash and signed a 5 year, 5% note payable for the balance. The equipment's useful life is expected to be 10 years, and other than recording the initial purchase, no further journal entries have been made regarding the equipment or the note. Ezra uses the straight-line method for depreciating all assets.A count showed that $650 worth office supplies are still on hand at year end, even though Ezra records all office supply purchases as expenses when made.
Instructions:
Using the above additional information, prepare the adjusting entries that should be made by Ezra Inc. on December 31 if they were following the requirements of accrual accounting. Omit explanations but show all calculations.