Question

5a. Adjusting Entries - Each of the following situations should be considered independently.

Required: Using the general journal on the following pages, prepare appropriate adjusting entries at December 31, 2018.

1. Salaries and Wages payable included in the December 31, 2018 unadjusted trial balance equals $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Four employees receive $700 each per week, and three employees earn $600 each per week. December 31 is a Monday. Employees do not work weekends. All employees worked the last week of December.

2. On October 1, 2017, Lowe Co. issued a note payable to National Bank in the amount of $900,000, bearing interest at 9%, and payable in three equal annual principal payments of $300,000. The first payment for interest and principal is due on October 1, 2018.

3. Lowe Co. received cash of $12,000 on June 1, 2018 for one year’s rent in advance and recorded the transaction with a credit to Unearned Rent Revenue.

4. During the year supplies in the amount of $20,800 were purchased. At the time of purchase, the Supplies (Asset) account was debited. Actual year-end supplies amounted to $8,600

5. At the end of the year, the unadjusted trial balance shows Equipment $30,000 and a zero balance in Depreciation Expense – Equipment. Depreciation for the year is estimated to be $2,000.

6. Lowe Company’s account balances at December 31, 2018 for Accounts Receivable and the related Allowance for Doubtful Accounts are $920,000 debit and $1,400 credit, respectively. From an aging of accounts receivable, it is estimated that $25,000 of the December 31 receivables will be uncollectible.

Problem 5b.

The following accounts and their balances came from the general ledger of Decimal Co. at December 31, 2018.

Decimal Company

Balance

12/31/18

Accounts Payable 11,600

Accounts Receivable 16,600

Accumulated Depreciation 7,500

Allowance for Doubtful Accounts 1,000

Cash 15,000

Common Stock 20,000

Cost of Goods Sold 15,000

Depreciation Expense 392

Dividends 6,000

Equipment 36,000

Interest Expense 211

Interest Payable 211

Notes Payable due 6/30/2019 10,500

Office Supplies 600

Prepaid Rent 1,200

Rent Expense 7,800

Retained Earnings 3,619

Salaries Expense 8,600

Sales Revenue 52,223

Unearned Revenue 750

Required:

1. Using the journal on the following page, prepare the closing entries at the end of the year.

2. What is the ending balance of retained earnings that will be reported on the company’s balance sheet at December 31, 2018?

Answer 1

5a
Journal entries
Event	General Journal	Debit	Credit
1	Salaries and wages expense	$920
	Salaries and wages payable		$920
	(To record salaries and wages payable)
	((700/5)*4) + ((600/5)*3)
2	Interest expense	$3,000
	Interest payable		$3,000
	(To record accrued interest)
	(300000-100000)*9%*(2/12)
3	Unearned rent revenue	$7,000
	Rent revenue		$7,000
	(To record rent revenue earned)
	(12000/12)*7
4	Supplies expense	$12,200
	Supplies		$12,200
	(To record supplies utilised)
	(20800-8600)
5	Depreciation expense - Equipment	$2,000
	Accumulated depreciation - Equipment		$2,000
	(To record depreciation expense)
6	Bad debt expense	$25,000
	Allowance for doubtful debt		$25,000
	(To record bad debt expense)
5b
Closing journal entries are recorded to close the temporary accounts of income statement and are transferred to retained earnings
Event	General Journal	Debit	Credit
1	Sales revenue	$52,223
	Income summary		$52,223
	(To record closure of sales account)
2	Income summary	$32,003
	Cost of goods sold		$15,000
	Depreciation expense		$392
	Interest expense		$211
	Rent expense		$7,800
	Salaries expense		$8,600
	(To record closure of expenses account)
3	Income summary	$20,220
	Retained earnings		$20,220
	(To record closure of income summary account)
	(52223-32003)
4	Retained earnings	$6,000
	Dividend		$6,000
	(To close dividend account)
2	Calculation of ending retained earnings balance
	Retained earnings, Jan 1	$3,619
	Add: Net Income	$20,220
	Less: Dividend paid	-$6,000
	Retained earnings, Dec 31	$17,839