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A review of the ledger of Sandhill Co. at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries.
| 1. | Prepaid Insurance $20,796. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on July 1, 2016, for $13,680. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2017, for $9,396. This policy has a term of 18 months. | |
| 2. | Unearned Rent Revenue $378,520. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease. |
| Term | Number of | |||||||||
| Date | (in months) | Monthly Rent | Leases | |||||||
| Nov. 1 | 8 | $4,540 | 6 | |||||||
| Dec. 1 | 5 | $8,030 | 4 | |||||||
| 3. | Notes Payable $47,600. This balance consists of a note for 6 months at an annual interest rate of 7%, dated October 1. | |
| 4. | Salaries and Wages Payable $0. There are 12 salaried employees. Salaries are paid every Friday for the current week. 5 employees receive a salary of $610 each per week, and 7 employees earn $760 each per week. Assume December 31 is a Wednesday. Employees do not work weekends. All employees worked the last 3 days of December. |
Prepare the adjusting entries at December 31, 2017. (If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Expert Answer
1.Pre-paid insurance: $20,796.
a. Ploicy B4564 on the building.
Purchased on July1, 2016. for $13,680.
Term of the policy = 3 years. Annual insurance = $4,560 ($13,680/3)
Insurance exepense to be booked for 2017 $4,560.
b. Ploicy A2958 on vehicles.
Purchased on January1, 2017 for $9,396
Term of the policy 18 months , Annual insurance = $9,396/18*12 = $6,264
Insurance expense to be recorded for 2017 $,6,264.
Total insurance expense to be recorded for 2017 $10,824 ($4,560+$6,264)
Entry to be recorded:
| Details | Debit | Credit |
| Insurance expense | 10,824 | |
| Prepaid insurance | 10,824 | |
| (Insurance for the year accounted) |
2.
| Lease details | Total | Income to be recorded | ||||||
| Date of lease | No.of months | Monthly rent | No.of leases | Value | No.of months | Monthly rent | No.of leases | Value |
| (A) | (B) | (C) | (A*B*C) | (D) | (E) | (F) | (D*E*F) | |
| Nov.1 , 2017 | 8 | 4540 | 6 | 217920 | 2 | 4540 | 6 | 54480 |
| Dec.1, 2017 | 5 | 8030 | 4 | 160600 | 1 | 8030 | 4 | 32120 |
| 378520 | 86600 | |||||||
| The journal entry to be recorded will be : | ||||||||
| Account & Details | Debit | Credit | ||||||
| Unearned revenue | 86600 | |||||||
| Rental revenue | 86600 | |||||||
| (Rental revenue accounted) | ||||||||
3. No entry needed. Value of the 7% note is not given.
4.
| Salary per | Salary | No. Of | Salary for | |
| week | per day | employees | last three days | |
| (A) | (A / 5) | (C) | ||
| (B) | (B * C *3) | |||
| 610 | 122 | 5 | 1830 | |
| 760 | 152 | 7 | 3192 | |
| 5022 | ||||
| The journal entry to be recorded will be | ||||
| Account & Details | Debit | Credit | ||
| Salaries & wages expense | 5022 | |||
| Salaries & wages payable | 5022 | |||
| (Salaries for the last three days accounted) | ||||
