Question

Martin Towing Company is at the end of its accounting year ending December 31. The following data that must be considered were developed from the company's records and related documents:

1. On January 1 of the current year, the company purchased a new hauling van at a cash cost of $23,800. Depreciation estimated at $3,000 for the year has not been recorded for the current year.
2. During the current year, office supplies amounting to $890 were purchased for cash and debited in full to Supplies. At the end of last year, the count of supplies remaining on hand was $400. The inventory of supplies counted on hand at the end of the current year was $300.
3. On December 31 of the current year, Lanie's Garage completed repairs on one of the company's trucks at a cost of $1,080; the amount is not yet recorded by Martin and by agreement will be paid during January of next year.
4. On December 31 of the current year, property taxes on land owned during the current year were estimated at $1,340. The taxes have not been recorded and will be paid in the next year when billed.
5. On December 31 of the current year, the company completed towing service for an out-of-state company for $6,900 payable by the customer within 30 days. No cash has been collected, and no journal entry has been made for this transaction.
6. On July 1 of the current year, a three-year insurance premium on equipment in the amount of $660 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year.
7. On October 1 of the current year, the company borrowed $10,800 from the local bank on a one-year, 12 percent note payable. The principal plus interest is payable at the end of 12 months.
8. The income before any of the adjustments or income taxes was $40,000. The company's federal income tax rate is 30 percent. (Hint: Compute adjusted pre-tax income based on (a) through (g) to determine income tax expense.)

Required:

1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.

2. Prepare the adjusting entry required for each transaction at December 31 of the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar value)

Answer 1

1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.

a. Depreciation - accrued expense.

Amounted $3000

b. Supplies expenses - deferred expense.

Amounted

Opening = 400

Add: purchased = 890

Less: closing on hand = 300

Supplies consumed = 990

c. Repairs and Maintenance expense - accrued expense.

Amounted $1080

d. Property Taxes - accrued expense (not paid )

Amounted $1340

e. Revenue from Contract - accrued revenue, ( not received )

Amounted $6900

f. insurance expenses - accrued expense (expenses recognized for 6 month period Jul 1 to dec 31 current year )

Amounted $110 ( ($660 / 3 year ) * 6 months / 12 months )

g. Interest expenses - accrued expense (expenses recognized for 3 month period oct 1 to dec 31 current year )

Amounted   $324 ($10800 * 12% * 3 / 12 )

.	Earning before Adjustment	$40000.00
Less	Depreciation	-3000.00
Less	Office Supllies	-990.00
Less	Repair & Maintenance	-1080.00
Less	Property Taxes	-1340.00
Add	Revenue	6900.00
Less	Insurance Expenses	-110.00
Less	Interest Expense	-324.00
	Taxable Income	$40056.00
	Tax @ 30%	$12016.8

2. All journal entries with a December 31, date

Journal Entry and nature of transaction both are given below :

Tra.	Account	Debit	Credit	Nature of Transaction
a	Depreciation	3000		Deferred expenses
	New Hauling Van		3000
	(Being depreciation for the year)
b	Office Supplies	990		Accrued Expenses
	Inventory Office Supplies		990
	(Being Office supplies used during the year)
c	Repair & Maintenance	1080		Accrued Expenses
	Accounts Payable		1080
	(Being repairing of Truck which is payable in Jan-18)
d	Property Taxes	1340		Accrued Expenses
	Accounts Payable		1380
	(Being Property taxes on Land for 2017 accrued)
e	Account Receivable	6900		Accrued Revenue
	Revenue from Contract		6900
	(Being revenue recognised for contact)
f	Insurance Expenses	110		Accrued Expenses
	Prepaid Insurance		110
	(6 Month insruance expense transferred from prepaid insurance)
g	Interest Expense	324		Accrued Expenses
	Interest Payable		324
	(Being accured interest for 3 month on principal of 10800 @ 12%)
h	Income tax	12017		Accrued Expenses
	Income tax Payable		12017
	(Being accrual of Income tax on taxable income of 400560 @ 30%)