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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Bronson Apparel Inc. operates a retail store and must determine the proper December 31, 2019, year-end accrual for the following expenses:

  • The store Lease calls for fixed rent of $1,000 per month, payable at the beginning of the month, and additional rent equal to 6% of net sales over $200,000 per calendar year, payable on January 31 of the following year. Net sales for 2019 are $800,000.
  • Bronson has personal property subject to a city property tax. The city’s fiscal year runs from July 1 to June 30, and the tax is payable on June 30. Bronson estimates that its personal property tax will amount to $6,000 for the city’s fiscal year ending June 30, 2020.

In its December 31, 2019, balance sheet, Bronson should report accrued expenses of:

  1. a. $39,000
  2. b. $42,000
  3. c. $51,000
  4. d. $54,000

To determine

Calculate the amount of accrued expense that would be reported in Incorporation B’s balance sheet as at December 31, 2019.

Explanation

Accrued expense: This is the expense incurred but not yet paid. It is treated as liability until the expense is paid. Hence, accrued expenses require adjustment at the end of the year.

Calculate the amount of accrued expense that would be reported in Incorporation B’s balance sheet as at December 31, 2019:

Accrued expense = (Additional rent payable  + Property taxes for 6 months)=($800,00

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