Concept explainers
Introduction: Each financial transaction or economic event will affect either assets, liabilities, or owners’ equity. Thus, the basis for recording the transaction in the accounting system depends on the
Adjustments: Accrual basis accounting requires a number of adjustments at the end of the period. The adjustment is made for unearned revenue, accrued expenses, revenue received in advance and prepaid expenses.
To identify and analyze: The necessary adjustments for each of the preceding situation on December 31, 2017.
Explanation of Solution
- Adjustment for the office furniture purchased last year
- Adjustment for supplies used during the year
- Adjustments for customer paid in advance.
- Adjustment for prepaid rent.
- Adjustment for Notes payable
- Adjustment for wages payable
Activity:Operating
Accounts:Accumulated Depreciation − Furniture. Increase
Depreciation expense − Furniture. Increase
Statements:Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Accumulated Depreciation − Furniture ($3,000) | ($3,000) | Depreciation Expense − Furniture $3,000 | ($3,000) |
The depreciation for the year is calculated as follows:
Activity:Operating
Accounts:Supplies. Decrease
Supplies expense. Increase
Statements:Balance sheet and Income statement
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Supply inventory ($13,200) | ($13,200) | Supply expenses $13,200 | ($13,200) |
Supplies consumed during the year:
Particular | Amount ($) |
Supplies in hand on January 1, 2017 | 1,200 |
Supplies purchased during the year | 12,900 |
Less: Supplies in hand at the end of December 31, 2017 | (900) |
Supplies consumed | 13,200 |
Activity:Operating
Accounts:Customer deposits in advance. Decreases.
Revenue. Increase
Statements:Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Customer deposit in advance ($6,600) | $6,600 | $6,600 | $6,600 |
Customer deposits for $8,800 received on July 1, 2017, to be used for eight months.
As O enterprises close accounts in December every year. Hence deposits of six months from July to December will be recognized during the year:
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 ($16,000) | ($16,000) | Rent expense $16,000 | ($16,000) |
O rented warehouse on September 1, 2017, with six-month prepaid rent. As the accounts are closed in December, the rent of September to December will be recognized during the year. The rent expense is calculated as follows:
Activity:Financing
Accounts:Interest payable. Increases
Interest expense. Increases
Statements:Balance sheet and Income Statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Interest payable $300 | ($300) | $300 | ($300) |
90 days note taken for $30,000 at 6 percent interest payable at maturity in November. Hence interest for only the first two months will be taken for the year. The interest expense is calculated as follows:
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 $830 | ($830) | $830 | ($830) |
Wages are paid every Thursday and month-end is Sunday. Therefore, the wages expense of one day (Friday) will be adjusted. The amount of wages expenses is calculated as follows:
Want to see more full solutions like this?
Chapter 4 Solutions
Using Financial Accounting Information
- Takatak, Inc., uses the group depreciation method for its furniture account. The depreciation rate used for furniture is 21%. The balance in the furniture account on December 31, 2017, was P125,000, and the balance in Accumulated Depreciation-Furniture was P61,000. The following purchases and dispositions of furniture occurred in 2018 (assume that all purchases and disposals occurred at the beginning of each year).Assets SoldAssets Purchased Cost Selling PriceP35,000 P27,000 P8,000The carrying amount of furniture at December 31, 2018 is ?arrow_forwardMarigold Corporation owns equipment that cost $52,800 when purchased on April 1, 2013. Depreciation has been recorded at a rate of $8,800 per year, resulting in a balance in accumulated depreciation of $41,800 at December 31, 2017. The equipment is sold on July 1, 2018, for $10,560.Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit (a) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (b) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount enter an account titlearrow_forwardThe following information relates to a company which prepares financial statements to 31st December each year: (a) On 1st January 2017, the company acquired new plant costing Ghs10million. This plant will require a complete overhaul after five years of use, at an estimated cost of Ghs1million. Accordingly, the company wishes to make a provision of Ghs200,000 for plant overhaul costs in its financial statement for the year to 31st December 2017 and then to increase this provision by Ghs200,000 every year for the next four years. This will have the effect of spreading the overhaul costs yearly over the years 2017 to 2021. (b) On 31st December 2017, the company moved from leased premises into new freehold premises. The lease on the old premises will continue for three more years at an annual cost of Ghs100,000. The lease cannot be cancelled and the premises cannot be sublet or used for any other purpose. The company wishes to make a provision of Ghs300,000 in its financial statements for…arrow_forward
- On July 1, 2017, Snow Corp purchases a sleigh (property, plant, and equipment) and agrees to make 10 payments of $6,790 due on December 31 of each year. The annual market interest rate for the note is 5%. All adjusting journal entries are recorded on December 31. Assume that Snow Corp uses the double- declining method to record depreciation. The sleigh is estimated to have a useful life of 20 years and a salvage value of $700. Use the above information to answer the following questions. Round your answer to 2 decimal places. Present value of a single sum for 5 periods Present value of a single sum for 10 periods Present value of an annuity for 5 periods Present value of an annuity for 10 periods 2.5% .88385 78120 4.64583 8.75206 3.0% .86261 .74409 4.57971 8.53020 5.0% .78353 .61391 4.32948 7.72173 6.0% .74726 .55839 4.21236 7.36009 What is the journal entry(ies) recorded by Snow Corp on July 1, 2017? Write "NONE" if no journal entry is required.arrow_forwardRahman Company, a manufacturer of steel products, began operations on January 1, 2020. Rahman has a December 31 fiscal year-end and adjusts its accounts annually. Selected transactions related to its Brampton plant are as follows: Jan. 1, 2020 Paid cash for six (6) stamping machines for a total price of $15,300 plus delivery costs of $200 per unit Dec. 31, 2020 Recorded depreciation at year end. Assume that the stamping machines have a 5 year useful life and a residual (salvage) value of 10% of the original cost. Dec. 31, 2021 Recorded depreciation at year end. Jan. 1, 2022 One (1) stamping machine was sold for $1,250. . Dec. 31, 2022 Exchanged one (1) stamping machine for a welding machine. The list price of the welding machine was $8,000 and Rahman received a trade-in allowance for the stamping machine of $2,000 (remainder paid in cash). A new welding machine could be bought (without a trade-in) for $7,500. The fair market value of the stamping machine was $1,000.…arrow_forwardA company uses straight-line depreciation (round to the nearest whole month) and adjusts its accounts annually on 31 December. On 1 January 2016, A purchased a van for $450,000 which has an estimated useful life of 9 years and no residual value. On 1 January 2021, the company incurred the following expenditure on the van: (i) $1,500 for annual maintenance and servicing (ii) $60,000 to upgrade the van with a new and more powerful engine (iii) $1,000 to paint the van after 5 years of use. On 1 January 2021, the useful life of the van was revised to 13 years with a residual value of $15,000. Required: (a) What is the book value of the van as at 31 December 2020? (b) Journalize annual depreciation of the van on 31 December 2021. Show workings.arrow_forward
- On April 29, 2016, Quality Appliances purchased equipment for $250,000. The estimated service life of the equipment is seven years and the estimated residual value is $30,000. Quality's fiscal year ends on December 31. Question Depreciation Expense for 2017 using the Sum of the Year's Digits would be:arrow_forwardDinnell Company owns the following assets: In the year of acquisition and retirement of an asset, Dinnell records depreciation expense for one-half year. During 2020, Asset A was sold for 7,000. Required: Prepare the journal entries to record depreciation on each asset for 2017 through 2020 and the sale of Asset A. Round all answers to the nearest dollar.arrow_forwardOn January 1, 2017, Sheridan Company had a balance of $417,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill had an indefinite life. During 2017 , the company had the following transactionsarrow_forward
- Tom’s Surf Company, whose fiscal year ends December 31, completed the following transactions involving notes payable:2018Nov 30 Purchased inventory display equipment by issuing a 60 day 10 percent note for $35,000.Dec 31 Made the end-of-year adjusting entry to accrue interest expense2019Jan 29 Paid off the balance of the notePrepare the journal entries for the above transactions. Round your answers for interest calculations to the nearest cent. Assume there are 365 days in the year.arrow_forwardSwindall Industries uses straight-line depreciation on all of its depreciable assets. The company records annual depreciation expense at the end of each calendar year. On January 11, 2017, the company purchased a machine costing $117,000. The machine's useful life was estimated to be 12 years with an estimated residual value of $17,200. Depreciation for partial years is recorded to the nearest full month. In 2021, after almost five years of experience with the machine, management decided to revise its estimated life from 12 years to 20 years. No change was made in the estimated residual value. The revised estimate of the useful life was decided prior to recording annual depreciation expense for the year ended December 31, 2021. a. Prepare journal entries in chronological order for the given events, beginning with the purchase of the machinery on January 11, 2017. Show separately the recording of depreciation expense in 2017 through 2021. (Do not round intermediate calculations. Round…arrow_forwardOn September 1, 2015, Johnas, Inc. acquired a patent for $600,000. The patent has 16 years remaining in its legal life. However, Johnas, Inc. expects the patent's technology to have a useful life of 8 years. Prepare the journal entries to record the acquisition of the patent and the amortization expense for 2015. Date Account Debit Creditarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning