Concept explainers
Introduction: Each financial transaction or economic event will affect either assets, liabilities or owners’ equity. Thus the basis for recording these transactions in the accounting system depends on the
Adjustments: Number of
The necessary adjustments for each of the given situations on December 31, 2017.
Answer to Problem 4.2.1P
Following are the adjustments required.
Depreciation expense $2,950- Supply expenses $19,350
- Customer deposits in advance $20,000
- Rent expenses $5,400
- Interest expense $3,000
- Wages expenses $500
Explanation of Solution
a. Adjustment for depreciation on office furniture purchased last year
Activity: Operating
Accounts: Accumulated Depreciation − Equipment. Increase
Depreciation expense − Equipment. Increase
Equipment − Decrease.
Statements:
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Equipment ($2,950) | ($2,950) | Depreciation Expense − Furniture $2,950 | ($2,950) |
b. Adjustment for supplies used during the year
Activity: Operating
Accounts: Supply inventory. Decrease
Supplies expense. Increase
Statements: Balance sheet and Income statement
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Supply inventory ($19,350) | ($19,350) | Supply expenses $19,350 | ($19,350) |
Supplies consumed during the year
Supplies in hand on January 1, 2017 | $3,600 |
Supplies purchased during the year | $17,600 |
Less: Supplies in hand at the end of December 31, 2017 | ($1,850) |
Supplies consumed | $19,350 |
c. Adjustments for customer paid in advance.
Activity: Operating
Accounts: Customer deposits in advance. Decreases.
Revenue. Increase
Statement: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Customer deposit in advance ($20,000) | $20,000 | $20,000 | $20,000 |
Customer deposits for $24,000 received on August 1, 2017, to be used for six months.
As P Industries closes accounts in December every year. Hence deposits of five months from August to December can be used.
Customer deposit fivemonths $20,000 =
d. Adjustment for prepaid rent.
Activity: Operating
Accounts: Prepaid rent. Decreases
Rent expense. Increases
Statements: Balance sheet and income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Prepaid rent ($5,400) | ($5,400) | Rent expense $5,400 | ($5,400) |
P rented warehouse on November 1, 2017, with three-month prepaid rent, as P closes account in December, only two months’ rent out of three months advance payment is expensed that is $5,400 =
e. Adjustment for Interest on notes payable
Activity: Financing
Accounts: Interest payable. Increases
Interest expense. Increases
Statement: Balance sheet and Income Statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Interest payable $3,000 | ($3,000) | Interest expense $3,000 | ($3,000) |
120 days note taken for $200,000 at 9 percent interest payable at maturity. Hence interest for only 60 days or first two months can be taken this year
f. Adjustment for wages payable
Activity: Operating
Accounts: Wages payable. Increases
Wages expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Wages payable $500 | ($500) | $500 | ($500) |
As wages are paid every Thursday and month-end is Sunday, only three days from Friday to Sunday require adjustment.
The average daily pay is $500. As wages are paid on every Thursday, therefore, only wages for one day is taken that is only Friday.
Want to see more full solutions like this?
Chapter 4 Solutions
Using Financial Accounting Information: The Alternative to Debits and Credits, Loose-Leaf Version
- Adjusting Entries Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2016: Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2016, with interest and principal to be paid at maturity. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2016. During March, Kretz adds $750 to the account for purchases during the period. A count of the supplies on hand at the end of March indicates a balance of $1,370. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000. The companys plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Thursday, March 31. The company rented an idle warehouse to a neighboring business on February 1, 2016, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months rent received in advance. On March 1, 2016, Kretz Corporation credited a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900. Required For each of the preceding situations, prepare in general journal form the appropriate adjusting entry to be recorded on March 31, 2016.arrow_forwardInterest Payable—Quarterly Adjustments Glendive takes out a 12%, 90-day, $100,000 loan with Second State Bank on March 1, 2016. Assume that Glendive prepares adjusting entries only four times a year: on March 31, June 30, September 30, and December 31. Required Prepare the journal entry on March 1, 2016. Prepare the adjusting entry on March 31, 2016. Prepare the entry on May 30, 2016, when Glendive repays the principal and interest to Second State Bank.arrow_forwardWorksheet for Service Company Whitaker Consulting Company has prepared a trial balance on the following partially completed worksheet for the year ended December 31, 2019: Additional information: (a) On January 1, 2019, the company had paid 2 years rent in advance at 100 a month for office space, (b) the office equipment is being depreciated on a straight-line basis over a 10-year life, and no residua! value is expected, (c) interest of 150 has accrued on the note payable but has not been paid, and (d) the income tax rate is 30% on current income and will be paid in the first quarter of 2020. Required: 1. Complete the worksheet. 2. Prepare financial statements for 2019.arrow_forward
- Working Backward: Rent Receivable Randys Rentals reported the following on its year-end balance sheets: Randys rents space to a number of tenants, all of whom pay their monthly rent on the 10th of the following month. Randys reported rent revenue for 2016 of $64,200. Required How much cash did Randys collect from its tenants during 2016? Explain your answer.arrow_forwardWorksheet, Including Inventory Surian Motors Company prepared a trial balance on the following partially completed worksheet for the year ended December 31, 2019: Additional information: (a) The equipment is being depreciated on a straight-line basis over a 10-year life, with no residual value; (b) salaries accrued but nor recorded total 500; (c) on January 1, 2019, the company had paid 3 years rent in advance at 100 per month; (d) bad debts are expected to be 1% of total sales; (e) interest of 400 has accrued on the note payable; and (f) the income tax rate is 40% on current income and will be paid in the first quarter of 2020. Required: 1. Complete the worksheet. 2. Prepare financial statements for 2019. 3. Prepare closing entries in the general journal.arrow_forwardFlood Relief Inc. prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for June 2016: a. Flood received a $10,000, 4%, two-year note receivable from a customer for services rendered. The principal and interest are due on June 1, 2018. Flood expects to be able to collect the note and interest in full at that time. b. Office supplies totaling $5,600 were purchased during the month. The asset account Supplies is debited whenever a purchase is made. A count in the storeroom on June 30, 2016, indicates that supplies on hand amount to $507. The supplies on hand at the beginning of the month total $475. c. The company purchased machines last year for $170,000. The machines are expected to be used for four years and have an estimated salvage value of $2,000. d. On June 1, the company paid $4,650 for rent for June, July, and August. The asset Prepaid Rent was debited; it did not have a balance on…arrow_forward
- Adjusting and Closing EntriesAccount balances taken from the ledger of Builders’ Supply Corporation on December31, 2013, before adjustment, follow information relating to adjustments on December31, 2013:(a) Allowance for Bad Debts is to be increased to a balance of $3,000.(b) Buildings are depreciated at the rate of 5% per year.(c) Accrued selling expenses are $3,840.(d) There are supplies of $780 on hand.(e) Prepaid insurance relating to 2014 totals $720.(f) Accrued interest on long-term investments is $240.(g) Accrued real estate and payroll taxes are $900.(h) Accrued interest on the mortgage is $480.(i) Income taxes are estimated to be 30% of the income before income taxes.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000Allowance for Bad…arrow_forwardAdjusting and Closing EntriesAccount balances taken from the ledger of Builders’ Supply Corporation on December31, 2013, before adjustment, follow information relating to adjustments on December31, 2013:(a) Allowance for Bad Debts is to be increased to a balance of $3,000.(b) Buildings are depreciated at the rate of 5% per year.(c) Accrued selling expenses are $3,840.(d) There are supplies of $780 on hand.(e) Prepaid insurance relating to 2014 totals $720.(f) Accrued interest on long-term investments is $240.(g) Accrued real estate and payroll taxes are $900.(h) Accrued interest on the mortgage is $480.(i) Income taxes are estimated to be 30% of the income before income taxes.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000Allowance for Bad…arrow_forwardAdjusting and Closing EntriesAccount balances taken from the ledger of Builders’ Supply Corporation on December31, 2013, before adjustment, follow information relating to adjustments on December31, 2013:(a) Allowance for Bad Debts is to be increased to a balance of $3,000.(b) Buildings are depreciated at the rate of 5% per year.(c) Accrued selling expenses are $3,840.(d) There are supplies of $780 on hand.(e) Prepaid insurance relating to 2014 totals $720.(f) Accrued interest on long-term investments is $240.(g) Accrued real estate and payroll taxes are $900.(h) Accrued interest on the mortgage is $480.(i) Income taxes are estimated to be 30% of the income before income taxes.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000Allowance for Bad…arrow_forward
- Adjusting and Closing EntriesAccount balances taken from the ledger of Builders’ Supply Corporation on December31, 2013, before adjustment, follow information relating to adjustments on December31, 2013:(a) Allowance for Bad Debts is to be increased to a balance of $3,000.(b) Buildings are depreciated at the rate of 5% per year.(c) Accrued selling expenses are $3,840.(d) There are supplies of $780 on hand.(e) Prepaid insurance relating to 2014 totals $720.(f) Accrued interest on long-term investments is $240.(g) Accrued real estate and payroll taxes are $900.(h) Accrued interest on the mortgage is $480.(i) Income taxes are estimated to be 30% of the income before income taxes.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000Allowance for Bad…arrow_forwardBrooks Inc. issued a $220,000, six-month, 6% note to purchase equipment on August 1, 2022. Brooks Inc's fiscal year end is September 30. The journal entry to record unpaid, accrued interest as of September 30, 2022 is: Interest expense 6,600 Interest payable 6,600 Interest expense 13,200 Interest payable 13,200 Interest expense 2,200 Interest payable 2,200arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning