Paula Judge owns Judge Creative Designs. The trial balance of the firm for January 31, 2019, the first month of operations, is shown below. End-of-the-month adjustments must account for the following items: Supplies were purchased on January 1, 2019; inventory of supplies on January 31, 2019, is $1,600. The prepaid advertising contract was signed on January 1, 2019, and covers a four-month period. Rent of $2,100 expired during the month. Depreciation is computed using the straight-line method. T

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Paula Judge owns Judge Creative Designs. The trial balance of the firm for January 31, 2019, the first month of operations, is shown below. End-of-the-month adjustments must account for the following items: Supplies were purchased on January 1, 2019; inventory of supplies on January 31, 2019, is $1,600. The prepaid advertising contract was signed on January 1, 2019, and covers a four-month period. Rent of $2,100 expired during the month. Depreciation is computed using the straight-line method. The equipment has an estimated useful life of 10 years with no salvage value. Required: Complete the worksheet for the month. Prepare an income statement, statement of owner’s equity, and balance sheet. No additional investments were made by the owner during the month. Journalize and post the adjusting entries. Analyze: If the adjusting entries had not been made for the month, would net income be overstated or understated?

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Question Completion:Judge Creative DesignsTrial Balance as of January 31, 2019:Account Titles               Debit      CreditCash                           $34,900Accounts receivable    12,000Supplies                         6,550Prepaid Advertising      6,000Prepaid Rent                15,600Equipment                  40,800Accumulated Depreciation           0Accounts Payable                         14,950Capital account                            59,400Drawing account         6,400Fees Income                                 58,100Advertising Expense   Depreciation Expense- EquipmentRent ExpenseSalaries Expense         9,100Supplies ExpenseUtilities Expense           1,100Totals                    $132,450   $132,450Answer:Judge Creative Designs:1. Adjusted Trial Balance as of January 31, 2019:Judge Creative DesignsTrial Balance as of January 31, 2019:Account Titles               Debit      CreditCash                           $34,900Accounts receivable    12,000Supplies                          1,600Prepaid Advertising      4,500Prepaid Rent                13,500Equipment                  40,800Accumulated Depreciation             $340Accounts Payable                         14,950Capital account                            59,400Drawing account         6,400Fees Income                                 58,100Advertising Expense   1,500Depreciation Expense- Equipment    340Rent Expense              2,100Salaries Expense        9,100Supplies Expense      4,950Utilities Expense          1,100Totals                    $132,790   $132,7902. Income Statement for the month ended January 31, 2019:Fees Income                               $58,100Advertising Expense $1,500Depreciation Expense- Equipment    340Rent Expense              2,100Salaries Expense        9,100Supplies Expense      4,950Utilities Expense          1,100Total expenses                            19,090Net income                                $39,0103. Statement of Owners' Equity for the month ended January 31, 2019:Capital account       $59,400Net income                 39,010Drawing account        (6,400)Equity balance         $92,0104. Balance Sheet as of January 31, 2019:Assets:Cash                                      $34,900Accounts receivable                12,000Supplies                                      1,600Prepaid Advertising                  4,500Prepaid Rent                            13,500Equipment                              40,800Accumulated Depreciation        (340)Total assets                        $106,960Liabilities + Equity:Accounts Payable                 $14,950Capital account                       92,010Total liabilities and equity  $106,9605. Adjusting Journal Entries:1. Debit Supplies Expense $4,950 Credit Supplies $4,950To record the supplies expense.2. Debit Advertising Expense $1,500 Credit Prepaid Advertising $1,500To record the advertising expense.3. Debit Rent Expense $2,100 Credit Prepaid Rent $2,100To record rent expense for the month.4. Debit Depreciation Expense $340 Credit Accumulated Depreciation $340To record depreciation expense for the month.6. Total adjusting expenses = $8,890.  The net income would have been overstated by $8,890.Explanation:a) Data and Adjustments:1. Supplies Expense $4,950 Supplies $4,950 ($6,550 - $1,600) Balance $1,6002. Advertising Expense $1,500 Prepaid Advertising $1,500 ($6,000/4) Balance $4,5003. Rent Expense $2,100 Prepaid Rent $2,100 Balance $13,500 ($15,600 - $2,100)4. Depreciation Expense $340 Accumulated Depreciation $340 ($40,800 * 10% * 1/12)

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