Question & Answer: Exercise 4-12 The ledger of Novak Corp. on July 31, 2017, includes the selected accounts below before adjusting entries have been prepared. Debit Credit Investment in Note…..

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Question & Answer: Exercise 4-12 The ledger of Novak Corp. on July 31, 2017, includes the selected accounts below before adjusting entries have been prepared. Debit Credit Investment in Note..... 1

Exercise 4-12 The ledger of Novak Corp. on July 31, 2017, includes the selected accounts below before adjusting entries have been prepared. Debit Credit Investment in Note Receivable Supplies Prepaid Rent Buildings Accumulated Depreciation-Buildings Unearned Service Revenue $12,000 22,000 4,400 210,000 $150,000 11,300 An analysis of the company’s accounts shows the following. I. The investment in the notes receivable earns interest at a rate of 6% per year. 2. Supplies on hand at the end of the month totaled $15,800 3. The balance in Prepaid Rent represents 4 months of rent costs. 4. Employees were owed $3,200 related to unpaid salaries and wages. 5. Depreciation on buildings is $5,400 per year. 6. During the month, the company satisfied obligations worth $4,650 related to the Unearned Services Revenue. 7. Unpaid maintenance and repairs costs were $2,300.

Expert Answer

1. The journal entries will be as follows


No.	Date	Account titles & Explanation	Debit	Credit
1	July.31	Interest Receivable	60
		Interest income		60
		(Interest income on note receivable accounted)
2	July.31	Supplies expense	6200
		Supplies		6200
		(Supplies expense for the month accounted)
3	July.31	Rent expense	1100
		Prepaid rent		1100
		(Rent expense for July accounted)
4	July.31	Salaries and wages expense	3200
		Salaries and wages payable		3200
		(Amount owed to employees for salaries and wages )
5	July.31	Depreciation expense – Building	450
		Accumulated depreciation – Building		450
		(Depreciation expense on building accounted)
6	July.31	Unearned service revenue	4650
		Service revenue		4650
		(Value of service obligations met during the month)
7	July.31	Maintenance and repairs expense	2300
		Accrued expenses		2300
		(Unpaid maintenance and repairs expenses accounted)

Notes:
1. Interest on notes receivable @6% for one month = (12,000*6%)/12 = 60
2. Balance of supplies account = 22,000
Supplies on hand = 15,800
Supplies expense(22,000 – 15,800) =6,200
3.Prepaid rent of 4,400 is for four month. Rent for July = 4,400/4 = 1,100

4,5 and 6 are straight entries.

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