Fernetti Advertising Agency, Inc. was founded by John Fernetti in January of 2010. Presented on page 138 are both the adjusted and unadjusted trial balances as of December 31, 2011.

FERNETTI ADVERTISING AGENCY, INC.

Trial Balance

December 31, 2011

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

7,200

5,600

Salaries Payable

–0–

1,300

Common Stock

25,000

25,000

Retained Earnings

500

500

Dividends

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

$139,250

$139,250

Instructions

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

(b) Prepare an income statement and a retained earnings statement for the year ending December 31, 2011, 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 2011, what was the balance in Salaries Payable on December 31, 2010?