Concept explainers
Problem 3-2B Preparing adjusting and subsequent
Natsu Company's annual accounting period ends on October 31. 2019. The following information concerns the
a. The Office Supplies account started the fiscal year with a S600 balance. During the fiscal year, the company purchased supplies for S4,570, which was added to the Office Supplies account. The supplies available at October 31, 2019, totaled S800. Page 120
b. An analysis of the company's insurance policies provided the following facts. The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Tear-end adjusting entries for Prepaid Insurance were properly recorded in all prior Escal years.)
Policy Date of Purchase Months of Coverage Cost
A...... April 1.201E 2A $6,000
B...... April 1.2019 36 7,200
C...... August 1.2019 12 1,320
Policy Date of Purchase Months of Coverage Cost
A...... April 1,2017 24 $14,400
B...... April 1,2013 36 12,960
C...... August 1.2019 12 2,400
C. The company has 15 employees, who earn atotal of SI, 960 in salaries each working day. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that December 31. 2019. is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year's Day is a paid holiday, they will be paid salaries for Eve full days on Monday, January 6, 2020.
d. The company purchased a building on January 1, 2019. It cost S960,000 and is expected to have a S45,000 salvage value at the end of its predicted 30-year life. Annual depreciation is S30.500.
S. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at S3,000 per month, starting on November 1. 2019. The rent was paid on time on November 1. and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.
f. On November 1. the company rented space to another tenant for S2.800 per month. The tenant paid five months' rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.
Required
1. Use the information to prepare adjusting entries as ofDecember 31, 2019.
2. Prepare journal entries to record the first subsequent cash transaction in 2020 for parts c and e.
Araei Company's annual accounting period ends on December 31, 2019. The following information concerns the adjusting entries to be recorded as of that date. Entries can draw from the following partial chart of accounts: Cash; Rent Receivable; Office Supplies; Prepaid Insurance; Building; Accumulated Depreciation—Building: Salaries Payable: Unearned Rent; Rent Earned; Salaries Expense; Office Supplies Expense; Insurance Expense; and Depreciation Expense—Building.
a. The Office Supplies account started the year with a 54,000 balance. During 2019, the company purchased supplies for S13,400, which was added to the Office Supplies account. The inventory of supplies available at December 31. 2019, totaled S2,554.
b. An analysis of the company's insurance policies provided the following facts. The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)
Want to see the full answer?
Check out a sample textbook solutionChapter 3 Solutions
FUND. ACCOUNTING PRINCIPLES >CUSTOM<
- Problem 3-69A Preparation of Closing Entries and an Income Statement Round Grove Alarm Company provides security services to homes in northwestern Indiana. At year end 2019, after adjusting entries have been made, the following list of account balances is prepared: Required: Prepare closing entries for Round Grove Alarm. Prepare an income statement for Round Grove Alarm.arrow_forwardT accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet The unadjusted trial balance of La Mesa Laundry at August 31, 2019, the end of the fiscal year, follows: La Mesa Laundry Unadjusted Trial Balance August 31,2019 Debit Balances Credit Balances Cash 3,800 Laundry Supplies 9,000 Prepaid Insurance 6,000 Laundry Equipment 180,800 Accumulated Depreciation 49,200 Accounts Payable 7,800 Bobbi Downey. Capital 95,000 Bobbi Downey. Drawing 2,400 Laundry Revenue 248,000 Wages Expense 135,800 Rent Expense 43,200 Utilities Expense 16,000 Miscellaneous Expense 3,000 400,000 400,000 The data needed to determine year-end adjustments are as follows: a.Wages accrued but not paid at August 31 are 2,200. b.Depreciation of equipment during the year is 8,150. c.Laundry supplies on hand at August 31 are 2,000. d.Insurance premiums expired during the year are 5,300. Instructions 1.For each account listed in the unadjusted trial balance, enter the balance in a T account. Identity the balance as "Aug. 31 Bal." In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, and Insurance Expense. 2.(Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (1) as needed. 3.Journalize and post the adjusting entries. Identity the adjustments as "Adj." and the new balances as "Adj. Bal." 4.Prepare an adjusted trial balance. 5.Prepare an income statement, a statement of owner's equity (no additional investments were made during the year), and a balance sheet. 6.Journalize and post the closing entries. Identify the closing entries as "Clos." 7.Prepare a post-closing trial balance.arrow_forwardExercise 3-54 Recreating Adjusting Entries Selected balance sheet accounts for Gardner Company are presented below. Required: Analyze each account and recreate the journal entries that are made. For deferrals, be sure to include the original journal entry as well as the adjusting journal entry. Month end is May 31, 2019.arrow_forward
- Problem 3-69B Preparation of Closing Entries and an Income Statement Port Austin Boat Repair Inc. has entered and posted its adjusting entries for 2019. The following are selected account balances after adjustment: Required: Using the accounts and balances above, prepare the closing entries for 2019. Prepare an income statement for port Austin Boat Repair.arrow_forwardExercise 3-46 Identification and Analysis of Adjusting Entries Medina Motor Service is preparing adjusting entries for the year ended December 31, 2019. The following items describe Medina s continuous transactions during 2019: Medinas salaried employees are paid on the last day of every month. Medinas hourly employees are paid every other Friday for the 2 weeks' work. The next payday falls on January 5, 2020. In November 2019, Medina borrowed $600,000 from Bank One, giving a 9% note payable with interest due in January 2020. The note was properly recorded. Medina rents a portion of its parking lot to the neighboring business under a long-term lease agreement that requires payment of rent 6 months in advance on April 1 and October 1 of each year. The October 1, 2019, payment was made and recorded as prepaid rent. Medinas department recognizes the entire revenue on every auto service job when the job is complete. At December 31, several service jobs are in process. Medina recognizes depreciation on shop equipment annually at the end of each year. Medina purchases all of its office supplies from Office Supplies Inc. All purchases are recorded in the supplies account. Supplies expense is calculated and recorded annually at the end of each year. Required: Indicate whether or not each item requires an adjusting entry at December 31, 2019. If an item requires an adjusting entry, indicate which accounts are increased by the adjustment and which are decreased.arrow_forwardProblem 3-71 A Preparing a Worksheet (Appendix 3A) Marsteller Properties Inc. owns apartments that it rents to university students. At December 31, 2019, the following unadjusted account balances were available: The following information is available for adjusting entries: An analysis of apartment rental contracts indicates that S3,800 of apartment rent is unbilled and unrecorded at year end. A physical count Of supplies reveals that $1,400 of supplies are on hand at December 31 , 2019. Annual depreciation on the buildings is $204,250. An examination of insurance policies indicates that $12,000 Of the prepaid insurance applies to coverage for 2019. Six months' interest at 9% is unrecorded and unpaid on the notes payable.arrow_forward
- T accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet The unadjusted trial balance of Epicenter Laundry at June 30, 2019, the end of the fiscal year, follows: Epicenter Laundry Unadjusted Trial Balance June 30,2019 Debit Balances Credit Balances Cash 11,000 Laundry Supplies 21,500 Prepaid Insurance 9,600 Laundry Equipment 232,600 Accumulated Depreciation 125,400 Accounts Payable 11,800 Sophie Perez, Capital 105,600 Sophie Perez, Drawing 10,000 Laundry Revenue 232,200 Wages Expense 125,200 Rent Expense 40,000 Utilities Expense 19,700 Miscellaneous Expense 5,400 475,000 475,000 The data needed to determine year-end adjustments are as follows: a.Laundry supplies on hand at June 30 are 3,600. b.Insurance premiums expired during the year are 5,700. c.Depreciation of laundry equipment during the year is 6,500. d.Wages accrued but not paid at June 30 are 1,100. Instructions 1.For each account listed in the unadjusted trial balance, enter the balance in a T account. Identify the balance as "June 30 Bal." In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, and Insurance Expense. 2.(Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (1) as needed. 3.Journalize and post the adjusting entries. Identify the adjustments as "Adj." and the new balances as "Adj. Bal." 4.Prepare an adjusted trial balance. 5.Prepare an income statement, a statement of owner's equity (no additional investments were made during the year), and a balance sheet. 6.Journalize and post the closing entries. Identify the closing entries as "Clos." 7.Prepare a post-closing trial balance.arrow_forwardProblem 3-68A Inferring Adjusting Entries from Account Balance Changes The following schedule shows all the accounts of Fresno Travel Agency that received year end adjusting entries: Required: Calculate the missing amounts identified by the letters (a) through (e). Prepare the five adjusting entries that must have been made to cause the account changes as indicated.arrow_forwardProblem 3-68B Inferring Adjusting Entries from Account Balance Changes The following schedule shows all the accounts of Eagle Imports that received year end adjusting entries: Required: Calculate the missing amounts identified by the letters (a) through (e). Prepare the five adjusting entries that must have been made to cause the account changes as indicated.arrow_forward
- Ledger accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet The unadjusted trial balance of Recessive Interiors at January 31, 2016, the end of the year, follows: The data needed to determine year-end adjustments are as follows: a. Supplies on hand at January 31 are 2,850. b. Insurance premiums expired during the year are 3,150. c. Depreciation of equipment during the year is 5,250. d. Depreciation of trucks during the year is 4,000. e. Wages accrued but not paid at January 31 are 900. Instructions 1. For each account listed in the unadjusted trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark () in the Posting Reference column. 2. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (3) as needed. 3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Recessive Interiors chart of accounts should be used: Wages Payable, 22; Depreciation ExpenseEquipment, 54; Supplies Expense, 55; Depreciation ExpenseTrucks, 56; Insurance Expense, 57. 4. Prepare an adjusted trial balance. 5. Prepare an income statement, a statement of owners equity (no additional investments were made during the year), and a balance sheet. 6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. 7. Prepare a post-closing trial balance.arrow_forwardCase 2-68 Accounting for Partially Completed Events: 3 Prelude to Chapter 3 Ehrlich Smith. the owner of The Shoe Bone has asked you to help him understand the proper way to account for certain accounting items as he prepares his 2019 financial statements. Smith has provided the following information and observations: (Continued) a. A 3-year fire insurance policy was purchased on 2019, for $2,400. Smith believes that a part of the cost of the insurance policy should be allocated to each period that benefits from its coverage. b. The store building was purchased for 580,000 in January 2011. Smith expected then (as he does now) that the building will be serviceable as a shoe store for 20 years from the date of purchase. In 2011, Smith estimated that he could sell the property for $6,000 at the end of its serviceable life. He feels that each period should bear some portion of the cost of this long-lived asset that is slowly being consumed. c. The Shoe Box borrowed 520300 on a 1-year, 8% note that is due on September 1 next year) Smith notes that $21,600 cash will be required to repay the note at maturity. The $1,600 difference is, he feels, a cost of using the loaned funds and should be spread over the periods that benefit from the use of' the loan funds; Required: Explain what Smith is trying to accomplish with the three items. Are his objectives supported by the concepts that underlie accounting?arrow_forwardExercise 3-55 Effect of Adjustments on the Financial Statements VanBrush Enterprises, a painting contractor, prepared the following adjusting entries at year end: a. Wages Expense ................ 2,550 Wages Payable 2,550 b. Accounts Receivable ....... 8,110 Service Revenue .............. 8,110 c. Unearned Service Revenue ………………… 5,245 Service Revenue ………..... 5.245 d. Rent Expense ............. 3,820 Prepaid Rem .......... 3,820 Required: 1. Show the effect of these adjustments on assets, liabilities, equity, revenues, expenses, and net Income. 2. CONCEPTUAL CONNECTION If these adjustments were made with estimates that were considered conservative, how would this affect your interpretation of earnings quality?arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningAccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting (Text Only)AccountingISBN:9781285743615Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Corporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning