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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 3, Problem 2P
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Adjusting Entries Clapton Guitar Company entered into the following transactions during the war. (The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.)

Chapter 3, Problem 2P, Adjusting Entries Clapton Guitar Company entered into the following transactions during the war.

On December 31, the following additional information is available:

  1. 1. Property taxes for the current year are due to be paid by April 1 of next year. The company has not paid or recorded its $2,300 property taxes for the current year.
  2. 2. The $302 December utility bill has not been recorded or paid.
  3. 3. Salaries accrued but not paid total $927.
  4. 4. Travel cost reports indicate that $787 of the $900 advanced has been used to pay for travel expenses by company personnel.
  5. 5. The Office Supplies account had a balance of $129 on January 1. A physical count on December 31 showed $174 of office supplies on hand.
  6. 6. On January 1, the Buildings account and the Store Equipment account had balances of $100,000 and $65,000, respectively. The buildings are expected to have a 20-year useful life and an $8,000 residual value, while the store equipment is expected to have a 10-year life and a $2,000 residual value. They are being depreciated using the straight-line method.
  7. 7. The income tax rate is 30% on current income and is payable in the first quarter of next year. The pretax income of the company before adjustments is $27,749.

Required:

On the basis of the preceding information, prepare journal entries to adjust Clapton’s books as of December 31. Each entry explanation should include supporting computations. (Round to the nearest dollar.)

To determine

Prepare journal entries to adjust Company CG’s accounts as of December 31.

Explanation

Adjusting entries:

Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare journal entries to adjust Company CG’s accounts as of December 31.

DateAccounts title and explanationPost Ref.Debit ($)Credit ($)
December 31Supplies Expense ($129+$480−$174) 435 
 Office Supplies  435
 (To record the amount of supplies used during the period)   
     
December 31Prepaid Rent 300 
 Rent Expense ($3,600×112)  300
 (To record the amount of prepaid rent recognized)   
     
December 31Discount on Notes Payable 200 
 Interest Expense ($1,200×212)  200
 (To record the amount of prepaid interest recognized)   
     
December 31Depreciation Expense 11,800 
 Accumulated Depreciation – Building (1)  4,600
 Accumulated Depreciation-Store equipment (2)  6,300
 Accumulated Depreciation -  Office equipment (3)  900
 (To record the amount of depreciation expense for the period)   
     
December 31Interest Expense (4) 960 
  Interest Payable  960
 (To record the accrued  interest expense on notes payable)   
     
December 31Insurance Expense (5) 140 
 Prepaid Insurance  140
 (To record the insurance expense for the period)   
     
December 31Interest Receivable 292 
 Interest Revenue (6)  292
 (To record the interest earned but uncollectible)   
     
December 31Rent Revenue ($960×58) 600 
 Unearned Rent  600
 (To record the amount of revenue earned for the period   
     
December 31Travel Expenses 787 
 Prepaid Expenses  787
 (To record the amount of prepaid expense for the person airfare the period)   
     
December 31Property Tax Expense 2,300 
 Property Tax Payable  2,300
 (To record the property tax expense for the year)   
     
December 31Utilities expense 302 
 Utilities payable  302
 (To record the unpaid utility bill)   
     
December 31Salaries expense 927 
 Salaries payable  927
 (To record the accrued salaries at the end of the accounting period)   
     
December 31Income tax expense (7) 3,087 
 Income tax payable  3,087
 (To record the income tax expense)   

Table (1)

Working note (1):

Calculate the amount of accumulated depreciation for building:

Accumulated depreciation for building =[( Cost of building−Residual value)Life of asset]=[( $100,000−$8,000)20 years]=[$92,00020 years]=$4,600

Working note (2):

Calculate the amount of accumulated depreciation for store equipment:

Accumulated depreciation for store equipment} =[( Cost of store equipment−Residual value)Life of asset]=[( $65,000−$2,000)10 years]=[$63,00010 years]=$6,300

Working note (3):

Calculate the amount of accumulated depreciation for office equipment:

Accumulated depreciation for office equipment} =[( Cost of office equipment−Residual value)Life of asset×Period from May 1 to December 31]=[( $15,000−$1

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