Question 5 Before month-end adjustments are made, the September 30 trial balance

Question

Question 5

Before month-end adjustments are made, the September 30 trial balance of Horton Enterprise contains revenue of $9,200 and expenses of $6,500. Adjustments are necessary for the following items:

Calculate the correct net income for Horton’s for September.

• Depreciation for September is $300. • Revenue earned but not yet billed is $2,100. • Accrued interest expense is $800. • Revenue collected in advance that is now earned is $3,400. • Portion of prepaid insurance expired during September is $300.

Explanation / Answer

Revenue = 9,200 + 2,100 (earned) + 3,400 = $ 14,700

Expenses = 6,500 + 300 (depreciation) + 800 (expense incurred but not paid) + 300 (insurance expired)

              = $ 7900

Net income = revenue -expense

                 = 14,700 - 7,900

                = $ 6,800

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