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    Adjusting Entries, Trial Balance, Balance Sheet and Income Statement for Elston Motel, Inc. (The Thayer Motel Inc.)

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    The Elston Motel, Inc. opened for business on May 1, 2008. Its trial balance before adjustment on May 31 is as follows.

    Trial Balance
    May 31, 2008
    Number Debit Credit
    101 Cash $ 2,500
    126 Supplies 1,900
    130 Prepaid Insurance 2,400
    140 Land 15,000
    141 Lodge 70,000
    149 Furniture 16,800
    201 Accounts Payable $ 5,300
    208 Unearned Rent 3,600
    275 Mortgage Payable 40,000
    311 Common Stock 55,000
    429 Rent Revenue 9,200
    610 Advertising Expense 500
    726 Salaries Expense 3,000
    732 Utilities Expense 1,000
    TOTAL $113,100 $113,100

    In addition to those accounts listed on the trial balance, the chart of accounts for Elston Motel also contains the following accounts and account numbers: No. 142 Accumulated Depreciation-Lodge, No. 150 Accumulated Depreciation-Furniture, No. 212 Salaries Payable,No. 230 Interest Payable,No. 320 Retained Earnings,No. 619 Depreciation Expense-
    Lodge, No. 621 Depreciation Expense-Furniture, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.

    Other data:
    1. Insurance expires at the rate of $200 per month.
    2. A count of supplies shows $500 of unused supplies on May 31.
    3. Annual depreciation is $3,600 on the lodge and $3,000 on furniture.
    4. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
    5. Unearned rent of $2,500 has been earned.
    6. Salaries of $800 are accrued and unpaid at May 31.


    (a) Journalize the adjusting entries on May 31.
    (b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts
    and post the adjusting entries. (Use J1 as the posting reference.)
    (c) Prepare an adjusted trial balance on May 31.
    (d) Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31.

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    Solution Summary

    The solution explains the adjusting entries, posting to ledger accounts, preparation of trial balance and preparation of financial statements in an attached Excel file.