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P3-3A Fernetti Advertising Agency was founded by John Fernetti in January of 2009. Presented

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P3-3A Fernetti Advertising Agency was founded by John Fernetti in January of 2009. Presented
on page 134 are both the adjusted and unadjusted trial balances as of December 31, 2010.

FERNETTI ADVERTISING AGENCY
Trial Balance
December 31, 2010

Unadjusted Adjusted
Dr. Cr. Dr. Cr.
Cash $ 11,000 $ 11,000
Accounts Receivable 20,000 22,500
Art Supplies 8,600 5,000
Prepaid Insurance 3,350 2,500
Printing Equipment 60,000 60,000
Accumulated Depreciation $ 28,000 $ 34,000
Accounts Payable 5,000 5,000
Interest Payable –0– 150
Notes Payable 5,000 5,000
Unearned Advertising Fees 7,200 5,600
Salaries Payable –0– 1,300
J. Fernetti, Capital 25,500 25,500
J. Fernetti, Drawing 12,000 12,000
Advertising Revenue 58,600 62,700
Salaries Expense 10,000 11,300
Insurance Expense 850
Interest Expense 350 500
Depreciation Expense 6,000
Art Supplies Expense 3,600
Rent Expense 4,000 4,000
$129,300 $129,300 $139,250 $139,250

Instructions

(a) Journalize the annual adjusting entries that were made.

(b) Prepare an income statement and a statement of owner’s equity for the year ending
December 31, 2010, and a balance sheet at December 31.

(c) Answer the following questions.

(1) If the note has been outstanding 6 months, what is the annual interest rate on that
note?

(2) If the company paid $12,500 in salaries in 2010, what was the balance in Salaries Payable
on December 31, 2009?

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