Big Blue Rental Corp. provides rental agent services to apartment building owner
ID: 2330040 • Letter: B
Question
Big Blue Rental Corp. provides rental agent services to apartment building owners. Big Blue Rental Corp.'s preliminary income statement for August 2016 and its August 31, 2016 preliminary balance sheet did not reflect the following: a. Rental commissions of $1,500 had been earned in August but had not yet been received from or billed to building owners b. When supplies are purchased, their cost is recorded as an asset. As supplies are used, a record of those used is kept. The record sheet shows that $1,080 of supplies were used in August c. Interest on the note payable is to be paid on May 31 and November 30. Interest for August has not been accrued-that is, it has not yet been recorded. (The Interest Payable of $240 on the balance sheet is the amount of the accrued liability at July 31 .) The interest rate on this note is 10%. d. Wages of $780 for the last week of August have not been recorded. e. The Rent Expense of $3,060 represents rent for August, September, and October, which was paid early in August. f. Interest of $840 has been eamed on notes receivable but has not yet been received. g. Late in August, the board of directors met and declared a cash dividend of S8,400, payable September 10. Once declared, the dividend is a liability of the corporation until it is paid Required a. Using the columns provided on the income statement and balance sheet for Big Blue Rental Corp., make the appropriate adjustments/corrections to the statements, and enter the correct amount in the Final column. (Hint: Use the five questions of transaction analysis. What is the relationship between net income and the balance sheet?) BIG BLUE RENTAL CORP Income Statement August 2016 Adjustments/Corrections Debit Final 5,100 32,100 Interest revenue Total revenues Rent expense Wages expense 2 7,140 Interest expense $10,200 21,Explanation / Answer
Answers
Adjustments/Corrections
Preliminary
Debits
Credits
Final
Correction no. & Explanation
Commission Revenue
$ 27,000.00
$ -
$ 1,500.00
$ 28,500.00
a.
$ 1500 is earned will be added to Net Income and recorded on Asset side as accrued (receivable) income
Interest Revenue
$ 5,100.00
$ -
$ 840.00
$ 5,940.00
f.
Interest earned, but not received.
Total revenues
$ 32,100.00
$ -
$ 2,340.00
$ 34,440.00
Rent Expenses
$ 3,060.00
$ -
$ 2,040.00
$ 1,020.00
e.
Rent for Sept and Oct removed from expenses. [3060 x 2 months/3months]
Wages Expenses
$ 7,140.00
$ 780.00
$ -
$ 7,920.00
d.
Wages not recorded, now recorded.
Supplies expenses
$ 1,080.00
$ -
$ 1,080.00
b.
Supplies used or consumed is recorded as expenses
Interest Expenses
$ 120.00
$ -
$ 120.00
c.
Interest expense for the month of august
Total Expenses
$ 10,200.00
$ 1,980.00
$ 2,040.00
$ 10,140.00
Net Income
$ 21,900.00
$ 1,980.00
$ 4,380.00
$ 24,300.00
Adjustments/Corrections
Preliminary
Debits
Credits
Final
Correction no. & Explanation
ASSETS
Cash
$ 2,400.00
$ -
$ -
$ 2,400.00
Notes Receivables
$ 78,000.00
$ -
$ -
$ 78,000.00
Commission Receivables
$ -
$ 1,500.00
$ -
$ 1,500.00
a.
$ 1500 is earned will be added to Net Income and recorded on Asset side as accrued (receivable) income
Interest Receivables
$ -
$ 840.00
$ -
$ 840.00
f.
Interest earned but not received.
Prepaid Rent
$ -
$ 2,040.00
$ -
$ 2,040.00
e.
Prepaid rent for Sept and Oct.
Supplies
$ 3,900.00
$ -
$ 1,080.00
$ 2,820.00
b.
Supplies balance is reduced by the amount of Supplies used.
Total Assets
$ 84,300.00
$ 4,380.00
$ 1,080.00
$ 87,600.00
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts Payable
$ 720.00
$ -
$ -
$ 720.00
Notes Payable
$ 14,400.00
$ -
$ -
$ 14,400.00
Interest payable
$ 240.00
$ -
$ 120.00
$ 360.00
c.
Interest for 1 month accrued to be paid = $ 14400 x 10% x 1/12
Wages payable
$ -
$ -
$ 780.00
$ 780.00
d.
Wages accrued to be paid
Dividends payable
$ -
$ -
$ 8,400.00
$ 8,400.00
g.
Dividend to be paid on Sept 10.
Total Liabilities
$ 15,360.00
$ -
$ 9,300.00
$ 24,660.00
Paid In Capital
$ 14,400.00
$ -
$ -
$ 14,400.00
Retained earnings:
Balance Aug 1
$ 32,640.00
$ -
$ -
$ 32,640.00
Net Income
$ 21,900.00
$ 1,980.00
$ 4,380.00
$ 24,300.00
Dividends
$ -
$ 8,400.00
$ -
$ 8,400.00
g.
Dividend declared.
Balance Aug 31
$ 54,540.00
$ -
$ -
$ 48,540.00
Total Stockholder's Equity
$ 68,940.00
$ 10,380.00
$ 4,380.00
$ 62,940.00
Total Liabilities & Stockholder's Equity
$ 84,300.00
$ 10,380.00
$ 13,680.00
$ 87,600.00
Adjustments/Corrections
Preliminary
Debits
Credits
Final
Correction no. & Explanation
Commission Revenue
$ 27,000.00
$ -
$ 1,500.00
$ 28,500.00
a.
$ 1500 is earned will be added to Net Income and recorded on Asset side as accrued (receivable) income
Interest Revenue
$ 5,100.00
$ -
$ 840.00
$ 5,940.00
f.
Interest earned, but not received.
Total revenues
$ 32,100.00
$ -
$ 2,340.00
$ 34,440.00
Rent Expenses
$ 3,060.00
$ -
$ 2,040.00
$ 1,020.00
e.
Rent for Sept and Oct removed from expenses. [3060 x 2 months/3months]
Wages Expenses
$ 7,140.00
$ 780.00
$ -
$ 7,920.00
d.
Wages not recorded, now recorded.
Supplies expenses
$ 1,080.00
$ -
$ 1,080.00
b.
Supplies used or consumed is recorded as expenses
Interest Expenses
$ 120.00
$ -
$ 120.00
c.
Interest expense for the month of august
Total Expenses
$ 10,200.00
$ 1,980.00
$ 2,040.00
$ 10,140.00
Net Income
$ 21,900.00
$ 1,980.00
$ 4,380.00
$ 24,300.00
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