Exercise 3-3 Preparing adjusting entries LO P1

Exercise 3-3 Preparing adjusting entries LO P1

    Depreciation on the company's equipment for 2017 is computed to be $15,000.

    The Prepaid Insurance account had a $6,000 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $580 of unexpired insurance coverage remains.
    The Office Supplies account had a $570 debit balance on December 31, 2016; and $2,680 of office supplies were purchased during the year. The December 31, 2017, physical count showed $673 of supplies available.
    Two-thirds of the work related to $12,000 of cash received in advance was performed this period.
    The Prepaid Insurance account had a $5,900 debit balance at December 31, 2017, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $5,320 of coverage had expired.
    Wage expenses of $5,000 have been incurred but are not paid as of December 31, 2017.


Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.




Explanation

    Prepaid insurance* = ($6,000 – $580) = $5,420
    Office supplies** = ($570 + $2,680 – $673) = $2,577
    Revenue = ($12,000 × 2/3) = $8,000

Notes:

Exercise 3-2 Adjusting and paying accrued expenses LO P1

Exercise 3-2 Adjusting and paying accrued expenses LO P1

    On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.

    A $580,000 note payable requires 9.0% annual interest, or $4,350, to be paid at the 20th day of each month. The interest was last paid on April 20, and the next payment is due on May 20. As of April 30, $1,450 of interest expense has accrued.
    Total weekly salaries expense for all employees is $12,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees had worked two days since the last payday. The next payday is May 3.


The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both:

    The April 30 adjusting entry.
    The subsequent entry during May to record payment of the accrued expenses.

 


Explanation

b.
Apr. 30 Interest expense = ($4,350 monthly interest × 10/30) = $1,450
May 20 Interest expense = ($4,350 monthly interest × 20/30) = $2,900
 
c.
Apr. 30 Salaries expense = ($12,000 × 2/5 week) = $4,800
May 3 Salaries expense = ($12,000 weekly salaries × 3/5 week) = $7,200