10 Nov Use of a Trial Balance to Record Adjusting Entries
Use of a Trial Balance to Record Adjusting Entries in T AccountsLewis and Associates has been in the termite inspection and treatment business for five years. Anunadjusted trial balance at June 30, 2008, follows.The following additional information is available:a. Lewis rents a warehouse with office space and prepays the annual rent of $4,800 on May 1 of eachyear.b. The asset account Equipment represents the cost of treatment equipment, which has an estimateduseful life of ten years and an estimated salvage value of $200.c. Chemical inventory on hand equals $1,300.d. Wages and salaries owed but unpaid to employees at the end of the month amount to $1,080.e. Lewis accrues income taxes using an estimated tax rate equal to 30% of the income for themonth.Required1. Set up T accounts for each of the accounts listed in the trial balance. Based on the additionalinformation given, set up any other T accounts that will be needed to prepare adjustingentries.2. Post the month-end adjusting entries directly to the T accounts but do not bother to put theentries in journal format first. Use the letters (a) through (e) from the additional informationto identify the entries.3. Prepare a trial balance to prove the equality of debits and credits after posting the adjustingentries.4. On the basis of the information you have, does Lewis appear to be a profitable business?Explain your answer.
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