Preparing adjusting entries, adjusted trial balance, and financial statements Watson Technical Institute (WTI), a school owned by Tom Watson, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2005, follows.
WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2005, follow. Additional Information Items
a. An analysis of the school’s insurance policies shows that $3,000 of coverage has expired.
b. An inventory count shows that teaching supplies costing $2,600 are available at year-end 2005. c. Annual depreciation on the equipment is $12,000.
d. Annual depreciation on the professional library is $6,000.
e. On November 1, the school agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,200, and the client paid the first five months’ fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2006.
f. On October 15, the school agreed to teach a four-month class (beginning immediately) for an individual for $3,000 tuition per month payable at the end of the class. The services are being provided as agreed, and no payment has yet been received.
g. The school’s two employees are paid weekly. As of the end of the year, two days’ wages have accrued at the rate of $100 per day for each employee.
h. The balance in the Prepaid Rent account represents rent for December.
1. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.
2. Prepare the necessary adjusting journal entries for items a through h and post them to the T-accounts. Assume that adjusting entries are made only at year-end.
3. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance. 4. Prepare Watson Technical Institute’s income statement and statement of owner’s equity for the year 2005 and prepare its balance sheet as of December 31, 2005.
Check (2e) Cr.Training Fees Earned, $4,400; (2f ) Cr.Tuition Fees Earned, $7,500; (3) Adj.Trial balance totals, $301,500; (4) Net income, $38,500; Ending T.Watson, Capital $62,100 Cash Debit 26,000 Accounts receivable 0 Teaching supplies Debit 10,000 Prepaid insurance Debit 15,000 Prepaid rent Debit 2,000 Professional library Debit 30,000 Accumulated depreciation—Professional library Credit 9,000 Equipment Debit 70,000 Accumulated depreciation—Equipment credit 16,000 Accounts payable Credit 36,000 Salaries payable 0 Unearned training fees credit 16,000 Tuition fees earned credit 102,000 Training fees earned credit 38,000 Depreciation expense—Professional library 0 Depreciation expense—Equipment 0 Salaries expense Debit 48,000 Insurance expense 0 Rent expense debit 22,000 Teaching supplies expense 0 Advertising expense Debit 7,000 Utilities expense Debit 5,600 T. Watson, Capital Credit 63,600 T. Watson, Withdrawals Debit 40,000 Totals 275,600 Required: Adjusting Entries, T-Accounts, Adjusted Trial Balance, Income Statement, Balance Sheet.