Question & Answer: Prepare the proper adjusting journal entries for the ABC Company. Assume all entries are made at year end, December 31, 2017……

Prepare the proper adjusting journal entries for the ABC Company. Assume all entries are made at year end, December 31, 2017.

ABC Co completes a printing job for a client on December 31, 2017 but has not been paid or received the $1,500 cash payment due.

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A building with a cost of $450,000 a salvage value of $50,000 is purchased on January 1, 2017. The building has a 30 year life and ABC uses straight line depreciation

ABC moved into its new building on November 1, 2017. The landlord required ABC to pay 6 months’ rent in advance at $3,000 per month. At the time the bookkeeper debited rent expense and credited cash.

The ABC company pays each of its 10 employees $300 per day, the pay week being Monday through Friday with pay day being the following Tuesday. December 31st is on a Thursday.

ABC borrows $200,000 @ 8% from Citibank on June 1, 2017. No payments have yet been made to Citibank by ABC.

ABC’s balance sheet reports unearned income in the amount of $45,000 which represents $5,000 received from 9 clients. During the month ABC delivered and installed machinery for 4 of the clients.

ABC invested in a $200,000, 8% bond issued by the STU Company on March 1st 2017. No payments have been received to date from STU.

ABC reports a balance in its accounts receivable account of $2,220,000. The controller estimates that ABC will be unable to collect on 3% of the receivable based on past experience. (hint: we are trying to record estimated bad debt expense.)

The trial balance reports Sales Revenue at $760,000, Cost of Goods Sold at $230,000, Advertising expense of $80,000, selling expense of $72,000 and tax expense of $16,000. You have been asked to prepare the closing entry.

ABC has bought a 24 month insurance policy on April 1, 2017 in the amount of $4,800.

ABC has opening supply inventory of $3,200 and makes additional purchases of $12,000 during the year, debiting supply expense. End of year balance of supplies on hand is $4,800.

Expert Answer

 

Txn Explanations Debit Credit
a Accounts Receivable 1500
Service Revenue 1500
b Depreciation Expense – Building 13333.00
Accumulated Depreciation – Building 13333
= ( Cost – Salvage ) / Life
= ( 450000 – 50000) / 30
= 13333
c Prepaid rent 12000
Rent Expense 12000
= $3000 x 4 Months unexpired
d Salary Expense 12000
Salary Payable 12000
= 10 x 300 x 4 days
e Interest Expense 9333
Interest Payable 9333
= 200000 x 8% x 7/12 months
f Unearned Income 20000
Sale Revenue 20000
= 5000 x 4
g Accrued Interest 13333
Interest Revenue 13333
= 200000 x 8% x 10/12
h Bad Debt Expense 66600
Allowance for uncollectible accounts 66600
= 2220000 x 3%
i Sales revenue 760000
Cost of Goods Sold 230000
Advertising Expense 80000
Selling Expense 72000
Tax Expenses 16000
Income Summary 362000
j Insurance Expense 1800
Prepaid Insurance 1800
= 4800 / 24 x 9
k Supplies Expense 10400
Supplies 10400
Supplies Consumed
= 3200 + 12000 – 4800

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