Question

Ocean View, Inc. reported revenues of $645,000 and expenses of $360,000 for the month of May, before making any month-end adjusting entries. The following additional data are provided that might affect adjusting entries that will be prepared by an accountant at the end of May. • The portion of prepaid insurance expiring in May is $2,520. • A customer has used the facilities for two weeks in May; the fee of $4,200 has not yet been billed. • Unpaid employees’ salaries for the last week of May are $5,000. • May’s equipment depreciation is $1,000. • Supplies used in May cost $500. • In April, Ocean View received $22,000 in advance fees from customers. In May $11,000 of it was earned.

a) Calculate total revenues after the adjusting entries are made. Show the amounts that affect the initial $645,000 as additions and/or subtractions.

b) Calculate total expenses after the adjusting entries are made. Show the amounts that affect the initial $360,000 as additions and/or subtractions.

c) What is total net income after adjustments?

Answer 1

a. Total revenues after the adjusting entries are made : $ 660,200

b. Total expenses after the adjusting entries are made: $ 369,020

c. Net income after adjustments = $ 660,200 - $ 369,020 = $ 291,180

Adjustment	General Journal	Debit	Credit	Revenues	Expenses
May 31		$	$	$ 645,000	$ 360,000
i.	Insurance Expense	2,520			+ 2,520
	Prepaid Insurance		2,520
ii.	Accounts Receivable	4,200
	Service Revenue		4,200	+ 4,200
iii.	Salaries Expense	5,000			+ 5,000
	Salaries Payable		5,000
iv.	Depreciation Expense	1,000			+ 1,000
	Accumulated Depreciation		1,000
v.	Supplies Expense	500			+ 500
	Supplies		500
vi.	Unearned Revenue	11,000
	Service Revenue		11,000	+ 11,000
				$ 660,200	$ 369,020