Lewis and Associates has been in the termite inspection and treatment business for five years. An unadjusted trial balance at June 30, 2014, follows.
The following additional information is available:
a. Lewis rents a warehouse with office space and prepays the annual rent of $4,800 on May 1 of each year.
b. The asset account Equipment represents the cost of treatment equipment, which has an estimated useful life of ten years and an estimated salvage value of $200. c. Chemical inventory on hand equals $1,300.
d. Wages and salaries owed but unpaid to employees at the end of the month amount to $1,080.
e. Lewis accrues income taxes using an estimated tax rate equal to 30% of the income for the month.
Required
1. Set up T accounts for each of the accounts listed in the trial balance. Based on the additional information given, set up any other T accounts that will be needed to prepare adjusting entries.
2. Post the month-end adjusting entries directly to the T accounts but do not bother to put the entries in journal format first. Use the letters (a) through (e) from the additional information to identify the entries.
3. Prepare a trial balance to prove the equality of debits and credits after posting the adjusting entries.
4. On the basis of the information you have, does Lewis appear to be a profitable business? Explain your answer.