Prepare the necessary December 31, 2021, adjusting journal entries.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
P 2–3
| Account Title | Debits | Credits | ||
| Cash | 30,000 | |||
| 40,000 | ||||
| Supplies | 1,500 | |||
| Inventory | 60,000 | |||
| Notes receivable | 20,000 | |||
| Interest receivable | –0– | |||
| Prepaid rent | 2,000 | |||
| Prepaid insurance | 6,000 | |||
| Office equipment | 80,000 | |||
| Accumulated |
30,000 | |||
| Accounts payable | 31,000 | |||
| Salaries payable | –0– | |||
| Notes payable | 50,000 | |||
| Interest payable | –0– | |||
| Deferred sales revenue | 2,000 | |||
| Common stock | 60,000 | |||
| 28,500 | ||||
| Dividends | 4,000 | |||
| Sales revenue | 146,000 | |||
| Interest revenue | –0– | |||
| Cost of goods sold | 70,000 | |||
| Salaries expense | 18,900 | |||
| Rent expense | 11,000 | |||
| Depreciation expense | –0– | |||
| Interest expense | –0– | |||
| Supplies expense | 1,100 | |||
| Insurance expense | –0– | |||
| Advertising expense | 3,000 | |||
| Totals | 347,500 | 347,500 |
Information necessary to prepare the year-end adjusting entries appears below.
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Depreciation on the office equipment for the year is $10,000.
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Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $1,500.
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On October 1, 2021, Pastina borrowed $50,000 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
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On March 1, 2021, the company lent a supplier $20,000, and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.
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On April 1, 2021, the company paid an insurance company $6,000 for a two-year fire insurance policy. The entire $6,000 was debited to prepaid insurance.
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$800 of supplies remained on hand at December 31, 2021.
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A customer paid Pastina $2,000 in December for 1,500 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
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On December 1, 2021, $2,000 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $1,000 per month. The entire amount was debited to prepaid rent.
Required:
Prepare the necessary December 31, 2021, adjusting
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