Question: Reporting an Adjusted Income Statement Dyer Rental Store, a sole proprietorship owned by Jessica Dyer, completed its first year of operations on December 31, 2010. Because this is the end of the annual accounting period, the business's bookkeeper prepared the following tentative income statement:
You are an independent CPA hired by the business to audit its accounting systems and financial statements. In your audit, you developed additional data as follows:
a. Salaries and wages for the last three days of December amounting to $310 were not recorded or paid.
b. The $400 telephone bill for December 2010 has not been recorded or paid.
c. Depreciation on vans amounting to $23,000 for 2010 was not recorded.
d. Interest of $500 was not recorded on the note payable by Dyer Rental.
e. The Unearned Rental Revenue account includes $4,000 revenue earned in 2010.
f. Supplies costing $600 were used during 2010, but this has not yet been recorded.
Required:
1. Explain why adjusting entries are necessary.
2. For each item a through f, indicate the type of adjustment and then prepare the adjusting journal entry that should be recorded at December 31, 2010. If none is required, explain why.
3. Prepare a classified income statement for 2010 using adjusted amounts.