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Adjustments and Financial Statements

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Consider the unadjusted trial balance of Alpha Beta Internet Connections at October 31, 20x2, and the related month-end adjustment data.

Alpha Beta Internet Connections
Trial balance October 31, 20x2

Cash 5300
Accounts receivable 7000
Prepaid rent 4000
Supplies 600
Furniture 36000
Accumulated depreciation 3000
Accounts payable 8800
Salary payable
Common stock 15000
Retained earnings 21000
Dividends 4600
Advertising revenue 14400
Salary expense 4400
Rent expense
Utilities expense 300
Depreciation expense
Total 62200 62000

Adjustment data:

a. Accrued advertising revenue at October 31, 2900
b. Prepaid rent expired during the month. The unadjusted prepaid balance of 4000 relates to the period October 20x2 through January 20x3.
c. Supplies used during October, 200
d. Depreciation on furniture for the month. The furniture's expected useful life is 5 years.
e. Accrued salary expense at October 31 or Tuesday through Friday; the 5-day weekly payroll is 2000


1. Prepare the adjusted trial balance of Alpha Beta at October 31, 20x2. Key each adjusting entries by letter.
2. Prepare the income statement, the statement of retained earnings, and the classified balance sheet. Draw arrows linking the three financial statements.
3. A. compares the business net income for October to the amount of dividends paid to the owners. Suppose this trend continues into 20x3. What will be the effect on the business financial position, as shown by its accounting equation?
b. Will the trend make it easier or more difficult for Alpha Beta to borrow money if the business gets in a bind and need cash? Why?
c. Does either the current ratio or the cash position suggest the need for immediate borrowing? Explain?


Solution Summary

The solution explains the adjustment entries and the preparation of financial statements for Alpha Beta Internet Connections