Problem - The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan. The accounts listed below appeared in the December 31, 2014, trial balance.
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Debit
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Credit
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Prepaid Advertising
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$6,290
|
|
|
Equipment
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214,400
|
|
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Accumulated Depreciation-Equipment
|
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$63,700
|
|
Notes Payable
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89,640
|
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Unearned Service Revenue
|
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19,000
|
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Ticket Revenue
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356,700
|
|
Advertising Expense
|
17,020
|
|
|
Salaries and Wages Expense
|
65,230
|
|
|
Interest Expense
|
1,500
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|
Additional information is available as follows.
1. The equipment has an estimated useful life of 16 years and a salvage value of $36,800 at the end of that time. Amato uses the straight-line method for depreciation.
2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.
3. Late in December 2014, the theater sold 380 coupon ticket books at $50 each. 120 of these ticket books can be used only for admission any time after January 1, 2015. The cash received was recorded as Unearned Service Revenue.
4. Advertising paid in advance was $6,290 and was debited to Prepaid Advertising. The company has used $2,420 of the advertising as of December 31, 2014.
5. Salaries and wages accrued but unpaid at December 31, 2014, were $3,750.
Required -
Prepare any adjusting journal entries necessary for the year ended December 31, 2014.
Determine Amato's income before and after recording the adjusting entries.