Question

Determine the amount of net income (LO3-1) During the course of your examination of the financial statements of Trojan Corporation for the year ended December 31, 2021, you come across several items needing further consideration. Currently, net income is $88,000.

1. An insurance policy covering 12 months was purchased on October 1, 2021, for $16,800. The entire amount was debited to Prepaid Insurance and no adjusting entry was made for this item in 2021.
2. During 2021, the company received a $2,800 cash advance from a customer for services to be performed in 2022. The $2,800 was incorrectly credited to Service Revenue.
3. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $2,150 were on hand at December 31, 2021.
4. Trojan borrowed $58,000 from a local bank on September 1, 2021. Principal and interest at 12% will be paid on August 31, 2022. No accrual was made for interest in 2021.
Required:
Using the information in 1 through 4 above, determine the proper amount of net income as of December 31, 2021. (Do not round intermediate calculations. Amounts to be deducted should be indicated with a minus sign.)
Net income (unadjusted)
1. Adjustment for insurance
2. Adjustment for deferred revenue
3. Adjustment for supplies
4. Adjustment for interest
Net income (adjusted)

Answer 1

$81,410

Step-by-step explanation:

Calculation to determine amount of net income as of December 31, 2021

Net income ( Unadjusted ) $88,000

1. Adjustment for insurance -$4,200

2. Adjustment for deferred Revenue -$2,800

3. Adjustment for supplies $2,150

4. Adjustment for interest -$1,740

Net Income ( Adjusted ) $81,410

1. Calculation for insurance amount to be debited as Expense .

October to December will give us 3 months

Hence,

Insurance Expense = $16,800 * 3 / 12 Insurance Expense= $ 4,200

Which means that insurance expense amount of $4,200 will be less from net income.

2. Since the advance amount that is recieved for the services which is about to be performed next year is unearned revenue which means that the amount of $2,800 which is cash advance will less from net income.

3. We are going to add supplies in hand to net income because it will increase the net income of the company .

4. Based on the information given Interest on loan from the month of September 1,2021 to the month of December 31, 2021 will give us 4 months which means that we are going to debit as expense and less it from the net income.

Accrued Interest = $58,000 * 4/12 * 9%

Accrued Interest = $1,740

Therefore the amount of net income as of December 31, 2021 is $81,410