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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Accrued Liabilities

Thornwood Tile had the following items that require adjusting entries at the end of the year.

a. Thornwood pays payroll of $180,000 every other Friday for a 2-week period. This year the last payday is Friday, December 26. ( Note: The work week is Monday through Friday.)

b. Thornwood purchased $350,000 of tile on June 1 with a note payable requiring 12% interest. The interest and principal on this note are due within 1 year. As of December 31, Thornwood had not made any principal or interest payments.

c. Thornwood’s earned income is $900,000 for the year for tax purposes. Its effective tax rate is 30%. These taxes must be paid by April 15 of next year.

Required:

Prepare the adjusting journal entries to record these transactions at the end of the current year.

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

To prepare:

The adjusting journal entries for the given transactions.

Explanation

The adjusting journal entries for the given transactions are explained as follows:

Thornwood Title
Adjusting Journal Entries
As at December 31
# Account Titles Debit Credit
a. Wages Expense $ 54,000
Wages Payable $ 54,000
(Being adjustment made for the expense accrued) (180000*3/10)
b...

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