alters ads

Friday, 20 September 2013

a. On April 1, the company retained an attorney for a flat monthly fee of $3,000. This amount is paid to the attorney on the 12th day of the following month in which it was earned. b. A $440,000 note payable requires 8.1% annual interest, or $2,970 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, $990 of interest expense has accrued. c. Total weekly salaries expense for all employees is $14,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, 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 and the subsequent entry during May to record the payment of the accrued expenses.

 a.
On April 1, the company retained an attorney for a flat monthly fee of $3,000. This amount is paid to the attorney on the 12th day of the following month in which it was earned.
 b.
A $440,000 note payable requires 8.1% annual interest, or $2,970 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, $990 of interest expense has accrued.
 c.
Total weekly salaries expense for all employees is $14,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, 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 and the subsequent entry during May to record the payment of the accrued expenses.
 
Explanation:

a. Depreciation on the company's equipment for 2011 is computed to be $14,000. b. The Prepaid Insurance account had a $6,000 debit balance at December 31, 2011, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,980 of unexpired insurance coverage remains. c. The Office Supplies account had a $440 debit balance on December 31, 2010; and $2,680 of office supplies were purchased during the year. The December 31, 2011, physical count showed $519 of supplies available. d. One-fourth of the work related to $11,000 of cash received in advance was performed this period. e. The Prepaid Insurance account had a $5,900 debit balance at December 31, 2011, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $3,920 of coverage had expired. f. Wage expenses of $2,000 have been incurred but are not paid as of December 31, 2011. Prepare adjusting journal entries for the year ended (date of) December 31, 2011, for each of the above separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

a. Depreciation on the company's equipment for 2011 is computed to be $14,000.
b.
The Prepaid Insurance account had a $6,000 debit balance at December 31, 2011, before adjusting for the costs of any expired coverage. An analysis of the company’s insurance policies showed that $1,980 of unexpired insurance coverage remains.
c.
The Office Supplies account had a $440 debit balance on December 31, 2010; and $2,680 of office supplies were purchased during the year. The December 31, 2011, physical count showed $519 of supplies available.
d. One-fourth of the work related to $11,000 of cash received in advance was performed this period.
e.
The Prepaid Insurance account had a $5,900 debit balance at December 31, 2011, before adjusting for the costs of any expired coverage. An analysis of insurance policies showed that $3,920 of coverage had expired.
f. Wage expenses of $2,000 have been incurred but are not paid as of December 31, 2011.
 
Prepare adjusting journal entries for the year ended (date of) December 31, 2011, for each of the above separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also assume that fees collected in advance of work are initially recorded as liabilities.

 

Explanation:
 b. Prepaid Insurance = ($6,000 – $1,980) = $4,020
 c. Office Supplies = ($440 + $2,680 – $519) = $2,601
 d. Fee Revenue = ($11,000 × 1/4) = $2,750
  
  Notes:
Prepaid Insurance

 
  Beg. Bal. 6,000      
    ?   Used


  End. Bal. 1,980       
  
Office Supplies

 
  Beg. Bal. 440      
  Purch. 2,680      
    ?   Used


  End. Bal. 519