Question

A review of the ledger of Marin Inc. at December 31 produces the following data for the preparation of annual adjusting entries:

1. Salaries and Wages Payable, $0. There are 8 salaried employees. 5 employees receive a salary of $1,150 each per week, and 3 employees earn $690 each per week. Employees do not work weekends. All employees worked two days after the last pay period and before December 31.
2. Unearned Rent Revenue, $349,860. The company began leasing condos in its new building on November 1. Each tenant has to make a $5,340 security deposit that is not refundable until occupancy is ended. At December 31, the company had the following rental contracts that were paid in full for the entire term of the lease:

Date Term (in months) Monthly Rent Number of Leases

Nov. 1 6 $3,940 6
Dec. 1 6 $10,370 4

Prepaid Advertising, $16,560. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as follows:

Contract Date Amount Number of magazines Issues
A650 May 1 $6,960 12
B974 Oct. 1 9,600 24

The first advertisement runs in the month in which the contract is signed.

4. Notes Payable, $78,480. This balance consists of a one year, 8%, note that is dated June 1.

Required:
Marin is preparing for a meeting with potential investors. What is the net effect of the adjusting entries on net income?

Answer 1

the effect will decrease net income by 9588.73

Step-by-step explanation:

(1) we have salaries expense for the accrued amount

3 employees x 690 x 2/5 +

5 employees x 1150 x 2/5 = 3128

(2)

earned rent revenue

Nov 1st 3,940 for 6 month 2 month accrued = 1,313.33

Dec 1st 10,370 for 6 month 1 month accrued = 1,728.33

total earnings 3,041.67

(3)

6,960 for a whole year accrued for the year

between May 1st to Dec 31th = 4,640

9,600 for 24 months

between Oc 1st and Dec 31th portion accrued 3/24 = 1,200

total advertizing expense 5,840

(4)

Note Payables interest expense accrued

principal x rate x time

(portion of a year between june 1st and dece4mber 31th)

78,480 x 0.08 x 7/12 = 3.662,4

Net effect:

rent revenue 3,041.67

salaries expense (3128)

advertizing expense (5,840)

interest expense (3,662.4)

total impact (9588.73)