Chapter 3, Problem 5E

a.

To determine

Record the April 30 adjusting entry and subsequent payment entry in May for the payment legal service expenses.

Explanation of Solution

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.

Record the adjusting entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 30	Legal service expense		3,500
	Legal service payable			3,500
	(To record the adjusting entry for accrued legal fees)

Table (1)

• Legal service expense is an expense account and it is increased. Therefore, debit legal service expense with $3,500.
• Legal service payable is a liability account and it is increased. Therefore, credit legal service payable with $3,500.

Subsequent payment entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
May 12	Legal service payable		3,500
	Cash			3,500
	(To record the payment of accrued legal fees)

Table (2)

• Legal service payable is a liability account and it is decreased. Therefore, debit legal service payable with $3,500.
• Cash is an asset account and it is decreased. Therefore, credit cash with $3,500.

b.

To determine

Record the April 30 adjusting entry and subsequent payment entry in May for the payment Interest expense.

Explanation of Solution

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.

Record the adjusting entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 30	Interest expense		3,000
	Interest payable			3,000
	(To record the adjusting entry for accrued interest expense)

Table (3)

• Interest expense is an expense account and it is increased. Therefore, debit interest expense with $3,500.
• Interest payable is a liability account and it is increased. Therefore, credit interest payable with $3,500.

Working note:

Calculate the amount of interest expense:

$\begin{array}{c}\text{Interest expense}=\text{Monthly interest amount}\times \frac{\text{Interest Payment day}}{\text{Number of days in a months}}\\ =\$9,000\times \frac{10}{30}\\ =\$3,000\end{array}$

Subsequent payment entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
May 20	Interest payable		3,000
	Interest expense		6,000
	Cash			9,000
	(To record the payment of accrued interest expense)

Table (4)

• Interest payable is a liability account and it is decreased. Therefore, debit interest payable with $3,000.
• Interest expense is an expense account and it is increased. Therefore, debit insurance expense with $6,000.
• Cash is an asset account and it is decreased. Therefore, credit cash with $9,000.

Working note:

Calculate the amount of interest expense:

$\begin{array}{c}\text{Interest expense}=\text{Monthly interest amount}\times \frac{\text{Interest Payment day}}{\text{Number of days in a months}}\\ =\$9,000\times \frac{20}{30}\\ =\$6,000\end{array}$

c.

To determine

Record the April 30 adjusting entry and subsequent payment entry in May for the payment salaries expense.

Explanation of Solution

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.

Record the adjusting entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 30	Salaries expense		4,000
	Salaries payable			4,000
	(To record the adjusting entry for accrued salaries expense)

Table (5)

• Salaries expense is an expense account and it is increased. Therefore, debit salaries expense with $4,000.
• Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $4,000.

Working note:

Calculate the amount of accrued salaries expense:

$\begin{array}{c}\text{Accrued salaries expense}=\text{Salaries payable}\times \frac{\text{Salary Payment day}}{\text{Number of days in a week}}\\ =\$10,000\times \frac{2}{5}\\ =\$4,000\end{array}$

Subsequent payment entry:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
May 3	Salaries payable		4,000
	Salaries expense		6,000
	Cash			10,000
	(To record the payment of accrued salaries expense)

Table (6)

• Salaries payable is a liability account and it is decreased. Therefore, debit salaries payable with $4,000.
• Salaries expense is an expense account and it is increased. Therefore, debit salaries expense with $6,000.
• Cash is an asset account and it is decreased. Therefore, credit cash with $10,000.

Working note:

Calculate the amount of accrued salaries expense:

$\begin{array}{c}\text{Accrued salaries expense}=\left(\begin{array}{l}\text{Weekly salary}\times \\ \frac{\text{Salary Payment day}}{\text{Number of days in a week}}\end{array}\right)\\ =\left(\$10,000\times \frac{3}{5}\right)\\ =\$6,000\end{array}$