Question

Problem 1 (20%): Solar Lighting produced the following trial balance at the end of December 2018:

	Solar Lighting
	Trial Balance
	12/31/18
	Cash	8,500
	Accounts receivable	32,000
	Allowance for uncollectible accounts		700
	Inventory	90,000
	Prepaid insurance	5,100
	Equipment	84,000
	Accumulated Depreciation		35,000
	Notes payable		28,000
	Common stock		80,600
	Retained earnings		10,000
	Sales revenue		600,000
	Cost of goods sold	408,000
	Salaries and wages expense	115,000
	Advertising expense	6,700
	Supplies expense	5,000
		754,300	754,300

        

Required:

Based on the following information, prepare the adjusting entries required by Solar for 2018.

Solar estimates that 6.5% of its receivables will be uncollectible.

Equipment is depreciated on a straight-line basis over seven years; no salvage value is expected.

On 3/1/18, Solar acquired a three-year insurance policy and recorded it in a permanent account.

The three-year, 5% notes payable were issued on 4/1/18; interest is payable annually on 4/1.

Salaries and wages are paid every Friday, the last payment in 2018 occurring on Friday, December 28^th. The weekly payroll has running about $2,400.

Solar ordered web advertising for December, January, and February, which ran in December. The invoice for $1,500 ($500 per month) has not been recorded yet.

At the end of December, there were $1,500 of office supplies still on hand; they had been charged to Supplies expense when purchased.

Prepare the adjusted trial balance at 12/31/18.

Prepare closing entries for 2018.

Answer 1

				Adjustment
Trail Balance		Debit	Credit	Debit	Credit	Debit	Credit
	Cash	8,500			500	8,000
	Accounts Receivable	32,000				32,000
	Allowance for uncollectible accounts		700		2,080		2,780
	Supplies			1,500		1,500
	Inventory	90,000				90,000
	Prepaid Insurance	5,100			1,417	3,683
	Equipment	84,000				84,000
	Accumulated Depreciation—Equip.		35,000		12,000		47,000
	Salaries and wages expenses payable				960		960
	Interest Payable				1,050		1,050
	Notes Payable		28,000				28,000
	Common Stock		80,600				80,600
	Retained Earnings		10,000				10,000
	Sales Revenue		600,000				600,000
	Cost of goods sold	408,000				408,000
	Salaries and wages expenses	115,000		960		115,960
	Advertising expenses	6,700		500		7,200
	Supplies Expenses	5,000			1,500	3,500
	Depreciation Expense—Equip.			12,000		12,000
	Bad Debts			2,080		2,080
	Insurance Expenses			1,417		1,417
	Interest Expenses			1,050		1,050
		754,300	754,300	19,507	19,507	770,390	770,390
Adjusting Entry
Date	Accounts Titles & Explanation	Debit	Credit
	Bad debts	2,080
	Allowance for uncollectible accounts		2,080
	Depreciation Expense—Computer Equip.	12,000
	Accumulated Depreciation—Computer Equip.		12,000
	Insurance Expenses	1,417
	Prepaid Insurance		1,417
	Interest Expenses	1,050
	Interest Payable		1,050
	Salaries Expenses	960
	Salaries Payable		960
	Advertising expenses	500
	Cash		500
	Supplies	1,500
	Supplies Expenses		1,500