Reference no: EM132545556

Internet Consulting Service, Inc., adjusts its accounts every month. On the following page is the company's year-end Unadjusted trial balance dated December 31, 2011. (Bear in mind that adjusting entries already have been made for the first 11 months of 2011, but have not been made for December)

Other Data

1. On December 1, the company signed a new rental agreement and paid three months' rent in advance at a rate of $2,100 per month. This advance payment was debited to the Prepaid Office Rent account.

2. Dues and subscriptions expiring during December amounted to $50.

3. An estimate of supplies on hand was made at December 31; the estimated cost of the unused supplies was $450.

4. The useful life of the equipment has been estimated at five years (60 months) from date of acquisition.

5. Accrued interest on notes payable amounted to $100 at year-end. (Set up accounts for Interest Expense and for Interest Payable.)

6. Consulting services valued at $2,850 were rendered during December to clients who had made payment in advance.

7. It is the custom of the firm to bill clients only when consulting work is completed or, in the case of prolonged engagements, at monthly intervals. At December 31, consulting services valued at $11,000 had been rendered to clients but not yet billed. No advance payments had been received from these clients.

8. Salaries earned by employees but not paid as of December 31 amount to $1,700.

9. Income taxes expense for the year is estimated at $56,000. Of this amount, $51,000 has been recognized as expense in prior months, and $39,000 has been paid to tax authorities. The company plans to pay the $17,000 remainder of its income tax liability on January 15.

Instructions

Question a) Prepare the necessary adjusting journal entries on December 31, 2011.

Question b) Determine the amounts to be reported in the company's year-end adjusted trial balance for each of the following accounts: Consulting Fees Earned Dues and Subscriptions Expense Salaries Expense Depreciation Expense: Equipment Telephone Expense Miscellaneous Expenses Rent Expense Interest Expense Supplies Expense Income Taxes Expense

Question c) Prepare worksheet for Internet Consulting Service Inc.

Question d) Determine the company's net income for the year ended December 31, 2011. (Hint: Use the amounts determined in part b above.)

Question e) Prepare of the financial statements for Internet Consulting Inc. (Hint: Prepare Income Statement, Statement of Owner's equity and Balance Sheet).

Question f) Why do we make adjusting entries? Justify your answer with appropriate reasoning.