(Learning Objectives 3, 6: Adjusting and correcting the accounts; computing and evaluating the current ratio) The unadjusted trial balance of Good Times, Inc., at January 31, 20X6, does not balance. In addition, the trial balance needs to be adjusted before the financial statements at January 31, 20X6 can be prepared. The manager of Good Times needs to know the business’s current ratio.
Cash
$ 6,000
Accounts receivable
2,200
Supplies
800
Prepaid rent
1,200
Land
41,000
Accounts payable
10,000
Salary payable
700
Unearned service revenue
25,400
Note payable, due in 3 years
5,000
Common stock
7,300
Retained earnings
9,100
Service revenue
3,400
Salary expense
900
Rent expense
0
Advertising expense
0
Supplies expense
0
Required
1. How much out of balance is the trial balance? The error is in the Land account. ?
a. Supplies of $600 were used during January.
b. The balance of Prepaid Rent was paid on January 1 and covers the whole year 20X6. No adjustment was made on January 31.
c. At January 31, Good Times owes employees $400.
d. Unearned service revenue of $200 was earned during January.
Prepare a corrected, adjusted trial balance. Give Land its correct balance.
3. After the error is corrected and after these adjustments are made, compute the current ratio of Good Times, Inc. If your business had this current ratio, could you sleep at night?
