(Solved by Humans)-Problem 4-9 Use of a Trial Balance to Record Adjusting Entries in T Accounts Four Star Video has...

Paper Details

Problem 4-9 Use of a Trial Balance to Record Adjusting Entries in T Accounts Four Star Video has been in the video rental business for five years. An unadjusted trial balance at May 31, 2014, follows. (Continued ) LO5                   206                                                                                               Chapter 4           Income Measurement and Accrual Accounting   Four Star Video Unadjusted Trial Balance May 31, 2014 Debit              Credit Cash $  4,000       Prepaid Rent 6,600     Video Inventory 25,600     Display Stands 8,900     Accumulated  Depreciation     $  5,180 Accounts Payable     3,260   Customer Subscriptions     4,450   Capital Stock     5,000   Retained Earnings     22,170   Rental Revenue     9,200   Wage and Salary Expense 2,320       Utilities Expense 1,240       Advertising Expense 600       Totals $49,260   $49,260     The following additional information is available: a.      Four Star rents a store in a shopping mall and prepays the annual rent of $7,200 on April 1 of each year. b.      The asset account Video Inventory represents the cost of videos purchased from suppliers. When a new title is purchased from a supplier, its cost is debited to this account. When a title has served its useful life and can no longer be rented (even at a reduced price), it is removed from the inventory in the store. Based on the monthly count, the cost of titles on hand at the end of May is $23,140. c.       The display stands have an estimated useful life of five years and an estimated salvage value of $500. d.      Wages and salaries owed but unpaid to employees at the end of May amount to $1,450. e.       In addition to individual rentals, Four Star operates a popular discount subscription program. Cus- tomers pay an annual fee of $120 for an unlimited number of rentals. Based on the $10 per month earned on each of these subscriptions, the amount earned for the month of May is $2,440. f.       Four Star accrues income taxes using an estimated tax rate equal to 30% of the income for the month. Required 1.        Set up T accounts for each of the accounts listed in the trial balance. Based on the additional information given, set up any other T accounts that will be needed to prepare adjusting entries. 2.        Post the month-end adjusting entries directly to the T accounts but do not bother to put the entries in journal format first. Use the letters (a) through (f) from the additional information to identify the entries. 3.        Prepare a trial balance to prove the equality of debits and credits after posting the adjusting entries. 4.        On the basis of the information you have, does Four Star appear to be a profitable business? Explain your answer.   LO5