During the first year of Callahan Co.'s operations, all purchases were recorded as assets. Supplies in...

1) Supplies expense = $28,800 - $6,600 = $22,200 Adjusting entry: Date Account Titles and Explanation Debit Dec. 31 Supplies Expense $ 22,200 Supplies (To record the adjusting entry for supplies) Credit $ 22,200 Option a is wrong, because net income decreases by $22,200. Option c is wrong because supplies decreases by $22,200. Option d is wrong, because account payable is not involved in adjusting entry. The adjusting entry leads to increase in supplies expense of $22,200. Hence, the correct option is B. increases expenses by $22,200. 2) Net income (Loss) = $330,000 - $200,000 = $130,000 In case of income, retained earnings is credited an in case of loss retained earnings is debited. Credit Date Dec. 31 Debit $ 130,000 Account Titles and Explanation Income summary ($330,000-$200,000) Retained earnings (To close the income summary account) $ 130,000 Hence, the correct option is D. credit of $130,000.