Relax Spa Company is engaged in providing facial and body treatment in a spa centre. Customers are required to purchase spa coupons in advance. Coupons are redeemed when customers complete the treatment and the Company records income. The Company also sells day pass for using the spa facilities and records income. The Company records all income in “Service revenue”. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. Below is the Company’s unadjusted trial balance at the year ended 31 December, 2021 Account Title Debit $ Credit $
Relax Spa Company is engaged in providing facial and body treatment in a spa centre. Customers
are required to purchase spa coupons in advance. Coupons are redeemed when customers complete
the treatment and the Company records income. The Company also sells day pass for using the spa
facilities and records income. The Company records all income in “Service revenue”.
entries
Below is the Company’s unadjusted
Account Title Debit $ Credit $
Cash 428,800
Accounts receivable 10,000
Prepaid rent 72,000
Supplies 13,000
Equipment 240,000
Accounts payable 48,000
Income taxes payable 18,200
Unearned revenue 42,000
8% Notes payable 84,000
Interest payable 2,800
Share capital ($2 per share) 200,000
Service revenue 608,000
Salaries expense 100,000
Rent expense 182,000
Insurance expense 24,000
Depreciation expense: Equipment 40,000
Supplies expense 6,000
Interest expense 6,160
Income taxes expense 18,200
Information on adjusting entries:
(1) Accrued, but unrecorded and unpaid Salaries amounted to $14,000.
(2) On 1 July 2021, The Company borrowed $84,000 by signing a 2-year note payable at 8%
annual interest rate. The entire note, plus 2 years’ accrued interest, is due on 30 June 2023.
(3) During December 2021, the Company purchased supplies costing $1,000 by cash. No entry
has been made. Supplies on hand were $12,000 on 31 December, 2021.
(4) On 1 August, 2021, the company paid for the rental of spa centre for 12 months in advance.
(5) Spa coupons amounting $16,000 were redeemed in December 2021 for treatment.
(6) The Company estimated that the income taxes expense for the entire year was $24,800, which
to be paid next year.
(7) On 31 December, 2021, a customer has bought a 2-day pass for using the spa facilities on
31 December, 2021 and January 1, 2022 for $2,000. The total amount for the 2-day pass will
be paid by the customer when departing on January 1, 2022.
(8) On 31 December, 2021, the owner has purchased a fitness equipment amounting $120,000 for
her personal use.
(9) The estimated useful life of equipment is five years and
adopted. Depreciation expense had been updated to end of October 2021.
(10) On 31 December, 2021, the Company declared a cash dividend of $0.20 per share to be paid
on 31 March 2022.
Prepare the income statement for the year ended 31 December 2021, showing breakdown of
items under the captions of Revenues, Expenses, Profit before Taxes, Profit after Taxes.
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