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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Concept explainers
Question
This pages is about explaining a type of
![on act of fou
12 10 920514
Don Justi
bubrous]
nsaction
cash in
ement of
bility
tion
ash
ent of
le
justing
present
pond-
come
et or
controller or by a professional accountant, rather than
In many businesses, the
1922-
) 1 ns of tibstols bus inuosos
of sinine di obuloni atnom
YEAR-END AT OVERNIGHT AUTO SERVICE
90sqxs noilsissiqsb
To illustrate the various types of adjusting entries, we will again use our example involving
Overnight Auto Service. Chapter 3 concluded with Overnight's trial balance dated 28 February
2013 (the end of the company's second month of operations). We will now skip ahead to
31 December 2013-the end of Overnight's first year of operations. This will enable us to
illustrate the preparation of annual financial statements, rather than statements that cover only
usqs bingst
a single month.qxs om
21 316
Timur fl
Most companies make adjusting entries every month. We will assume that Overnight has
been following this approach throughout 2013. The company's unadjusted trial balance dated
31 December 2013, appears in Exhibit 4-2. It is referred to as an unadjusted trial balance
because Overnight last made adjusting entries on 30 November; therefore, it is still necessary
to make adjusting entries for the month of December. nismo esilqque odi to obem ei sismiles
GID
bozu gosd sved of bomueen sus "anizzim" 916
adj
by the regular accounting staff.
yone
Cash.o another opiraos esilqque
Accounts receivable.
obom ar
Shop supplies...
Unexpired insurance...
Land ...
Building...
Accumulated depreciation: building
Tools and equipment
Accumulated depreciation: tools and equipment
Sm
Notes payable....
291aqu2
Accounts payable.
ve
as of
:29200100
Income taxes payable.s. 2eilgqu2 god? or to somsled sri 29
Unearned rent revenue.
Share capital...
-ORetained earnings
OVERNIGHT AUTO SERVICE
Trial Balance
31 December 2013
Dividends.. od: 2.A.orab. 1
Repair service revenue.
Utilities expense..
Insurance expense
Income taxes expense...
000.81
-THROU
Advertising expense.
01 0:812
Wages expense ..
-mahlas
Supplies expense. 26 90
SONST nibus constant viilidsil svi
s
lipst
Depreciation expense: building.
Depreciation expense: tools and equipment.
nt qu'boa
1.18 is brid
Smium
26
29 LE is basd noad.o!!
In 2sipilog.
$ 18,592
6,500
1,800
4,500
52,000
36,000
92 smst esilqque
ni bozd
edmebed
12,000
2,000
4,000
wiesvise yuns gaitzujbs 2,690
boti (S) bas 19dmsos
$ 1,500
1,56020
.01. betsmites asilqque to 9,000 s
80,000
onl
1201.
1. 29iil09 9
org st
soms 14,000V192 sbiv
ho sdt sm
Teigmo
29tique voilo mi
3,900
56,800
6,900¹ Yoilog
esloidev 1,500 o ogs
20
quopos 15222,000 batidsb 26w
cons
171,250
Ieteulli OT
of
19,400
13,500
22,608 U
$272,000 $272,000
In the next few pages we illustrate several transactions, as well as the related adjust-
ing entries. Both are shown in the format of general journal entries. To help distinguish
between transactions and adjusting entries, transactions are printed in blue and adjusting entries
ni od to noino di non consled sin endgimovoni stor sans sonini
in red.
Trea
$
لعها
it
mo
er
Exh
UNA
BAL](https://content.bartleby.com/qna-images/question/ebdc8fea-4514-4407-afe6-9378f21da7ef/73a805dc-7a4a-43f0-91f3-ac244d2b0d84/84bm94v_thumbnail.jpeg)
Transcribed Image Text:on act of fou
12 10 920514
Don Justi
bubrous]
nsaction
cash in
ement of
bility
tion
ash
ent of
le
justing
present
pond-
come
et or
controller or by a professional accountant, rather than
In many businesses, the
1922-
) 1 ns of tibstols bus inuosos
of sinine di obuloni atnom
YEAR-END AT OVERNIGHT AUTO SERVICE
90sqxs noilsissiqsb
To illustrate the various types of adjusting entries, we will again use our example involving
Overnight Auto Service. Chapter 3 concluded with Overnight's trial balance dated 28 February
2013 (the end of the company's second month of operations). We will now skip ahead to
31 December 2013-the end of Overnight's first year of operations. This will enable us to
illustrate the preparation of annual financial statements, rather than statements that cover only
usqs bingst
a single month.qxs om
21 316
Timur fl
Most companies make adjusting entries every month. We will assume that Overnight has
been following this approach throughout 2013. The company's unadjusted trial balance dated
31 December 2013, appears in Exhibit 4-2. It is referred to as an unadjusted trial balance
because Overnight last made adjusting entries on 30 November; therefore, it is still necessary
to make adjusting entries for the month of December. nismo esilqque odi to obem ei sismiles
GID
bozu gosd sved of bomueen sus "anizzim" 916
adj
by the regular accounting staff.
yone
Cash.o another opiraos esilqque
Accounts receivable.
obom ar
Shop supplies...
Unexpired insurance...
Land ...
Building...
Accumulated depreciation: building
Tools and equipment
Accumulated depreciation: tools and equipment
Sm
Notes payable....
291aqu2
Accounts payable.
ve
as of
:29200100
Income taxes payable.s. 2eilgqu2 god? or to somsled sri 29
Unearned rent revenue.
Share capital...
-ORetained earnings
OVERNIGHT AUTO SERVICE
Trial Balance
31 December 2013
Dividends.. od: 2.A.orab. 1
Repair service revenue.
Utilities expense..
Insurance expense
Income taxes expense...
000.81
-THROU
Advertising expense.
01 0:812
Wages expense ..
-mahlas
Supplies expense. 26 90
SONST nibus constant viilidsil svi
s
lipst
Depreciation expense: building.
Depreciation expense: tools and equipment.
nt qu'boa
1.18 is brid
Smium
26
29 LE is basd noad.o!!
In 2sipilog.
$ 18,592
6,500
1,800
4,500
52,000
36,000
92 smst esilqque
ni bozd
edmebed
12,000
2,000
4,000
wiesvise yuns gaitzujbs 2,690
boti (S) bas 19dmsos
$ 1,500
1,56020
.01. betsmites asilqque to 9,000 s
80,000
onl
1201.
1. 29iil09 9
org st
soms 14,000V192 sbiv
ho sdt sm
Teigmo
29tique voilo mi
3,900
56,800
6,900¹ Yoilog
esloidev 1,500 o ogs
20
quopos 15222,000 batidsb 26w
cons
171,250
Ieteulli OT
of
19,400
13,500
22,608 U
$272,000 $272,000
In the next few pages we illustrate several transactions, as well as the related adjust-
ing entries. Both are shown in the format of general journal entries. To help distinguish
between transactions and adjusting entries, transactions are printed in blue and adjusting entries
ni od to noino di non consled sin endgimovoni stor sans sonini
in red.
Trea
$
لعها
it
mo
er
Exh
UNA
BAL

Transcribed Image Text:4,000
60
30
000,02 L
belei
ncluding
4,090
he customer
ervices are
ed until all
50
the current
king entry.
propriate
has been
ered into
ttle Ser-
able on
tod
et been
yment
usting
h:
pense
ry
31.
d
ACCRUING INCOME TAXES EXPENSE: tofsymomat 21
THE FINAL ADJUSTING ENTRY
As a corporation earns taxable income, it incurs income taxes expense, and also a liability
to governmental tax authorities. In each country, the tax remittance requirements are not the
same. For Overnight, our illustration assumes several requirements as follows: (a) the tax
liability is paid in four installments called estimated quarterly payments; (b) the first three
payments normally are made on 15 April, 15 June, and 15 September; and (c) the final
payment is not due until 15 January of the following year.
6
3120
Overic
pns
enstakit Ta
In its unadjusted trial balance (Exhibit 4-2 on page 147), Overnight shows income taxes
expense of $22,608. This is the income taxes expense recognized from 20 January 2013,
(the date Overnight opened for business) through 30 November 2013. Income taxes accrued
DINER
through 30 September have already been paid. Thus, the $1,560 liability for income taxes
payable represents only the income taxes accrued in October and November.
Sm
onbemos 91
Tortin
ng Sms 25
congueurot
J
The amount of income taxes expense accrued for any given month is only an estimate. The
Jor
pilidaily in to
25x1
DURISION
tomosfill
PALLET
actual amount of income taxes cannot be determined until the company prepares its annual
Smil
Hipoti vege
5510.19220
9440100
income tax return. In our illustrations and assignment materials, we estimate income taxes
insamos en su 2misombanshze
and are
expense at 40 percent of taxable income. We also assume that taxable income is equal to
Dorisq torq hisensake be also assume that
.
profit before income taxes, a subtotal often shown in an income statement. This subtotal is
anomearlos19-189 S 900660 1090 5280 INDO996 9106Y61 25X61
Я эmoonl
al revenue less all expenses other than income taxes. A "sldsvisos bouts & smoon!"
[-A tididxal ni awodz 28.2201 xsi-erotsd sr) to Jawoms sri jenison 19aflo
total
Anoth
INTERNATIONAL CASE IN POINT
Corporate income tax rates vary around the world. A recent survey shows that rates mor
range from 9 percent in Montenegro to 55 percent in the United Arab Emirates. The
average tax rate is 25 percent worldwide and 40 percent in the United States.* In
addition to corporate income taxes, some countries also (1) withhold taxes on dividends,
interest, and royalties, (2) charge value-added taxes at specified production and
distribution points, and (3) impose border taxes such as customs and import duties. W
ni-alitaned xs/ omoon in won soil
*KPMG Corporate Tax Rate Survey (January 2009)ber 25xil dem SAT 320k
Busin ses purchase many assets that have a very lo
profi
S
In 2013, Overnight earned profit before income taxes of $66,570 (see the income state-
ment in Exhibit 5-2, page 198, in Chapter 5). Therefore, income taxes expense for the entire
year is estimated at $26,628 ($66,570 × 40 percent). Given that income taxes expense
recognized through 30 November amounts to $22,608 (see the unadjusted trial balance
in Exhibit 4-2), an additional $4,020 in income taxes expense must have accrued during
Bb Veond nithe
expense is:
bersbrony Hssio
sintogard blozS9TD eboog/smirorh
dittoisuier coise los bossbong ghims bersigmon
4,020 lavitodida
ecember ($26,628 - $22,608). The adjusting entry to record this
esd 225plaud oni moqain
OSTERSEN OG HU
31 Dec.
Income Taxes Expense
TROLEU225302102,
20
Income Taxes Payable
GLE
2
19maizubiyet
4,020
isitAbstamitas Sd Vino
DIE
Adjusting entry to record income taxes accrued in December.
ovo nishoo viestitalomallaugu ziraidh bhs
ignored if the dollar amo
..
This entry increases the balance in the Income Taxes Expense account to the $26,628
year en
amount required for the
sid
XBJ
Shqxs XXS 5Vinkysh as to visos flat a time of any i mi
year ended 31 December 2013. It also increases the liability for
income taxes payable to $5,580 ($1,560 + $4,020). The transaction to record the payment
al mio bist and a
Sabqmod wolpin Ub Shri¹x Bin (ashunos olhos fil hovswol bonsq instio oli ni zal oil or gainaloi
6 This assumption enables us to
enables us to accrue income taxes in December in the same manner as in other months.
Otherwise, income taxes for this month would be recorded as a mid-month transaction, rather than in an
end-of-month adjusting entry. The adjusting entry for income taxes is an example of an accrued, but unpaid,
Apizare:
di
expense.
H₂
Do
th
niso tile
220l xa
OTH
T-A tidid:
SMOOTIO
ТИЗМЕТАТ
no
Bu
w
Adjusting ent
income taxes
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