Question

JRM Co. is in the process of closing its books for the year ended December 31, year 2.

The following business events are not properly reflected in JRM’s December 31, year 2, unadjusted trial balance:
  

The controller determined that half of the recorded rent expense is attributed to year 3.

JRM depreciates its property, plant and equipment using the straight-line method over 10 years. The property, plant and equipment had an original cost of $20,000 and a salvage value of $5,000.

JRM uses the percentage-of-sales method to determine the addition to bad debt expense. Uncollectible accounts receivable for year 2 was estimated to be 0.25%.

On December 31, year 2, a customer declared bankruptcy and its account receivable of $855 is uncollectible.

Life insurance premium for the period ended December 31, year 2, of $650 for key members of management are included in prepaid expense.

Interest of $300 was earned and outstanding on notes receivable during year 2. The note receivable is due at the end of year 5.

Income taxes for year 2 are estimated to be $3,000.

  

Based on the business events above, calculate the adjustments necessary to JRM’s unadjusted trial balance by entering the appropriate debit and credit amounts in columns D and E, respectively. Enter debit adjustments as positive values and credit adjustments as negative values. If there is no adjustment needed, enter zero as the adjustment.
  
The amounts in column F will automatically calculate.
  

	A	B	C	D	E	F
1	Amount name	Trial balance debit	Trial balance (credit)	Adjustment debit	Adjustment (credit)	Adjusted Trial balance debit/(credit) balance
2	Cash	1,000	0			1,000
3	Interest receivable	0	0			0
4	Accounts receivable	25,000	0			25,000
5	Allowance for doubtful accounts	0	-2,500			-2,500
6	Prepaid expenses	1,000	0			1,000
7	Property, plant and equipment	20,000	0			20,000
8	Accumulated depreciation - property, plant and equipment	0	-10,000			-10,000
9	Notes receivable	20,000	0			20,000
10	Accounts payable	0	-33,000			-33,000
11	Taxes payable	0	-1,000			-1,000
12	Equity	0	-1,500			-1,500
13	Sales	0	-300,000			-300,000
14	Cost of goods sold	195,000	0			195,000
15	Salaries, office, and general expenses	75,000	0			75,000
16	Rent expense	10,000	0			10,000
17	Tax expense	1,000	0			1,000
18	Bad debt expense	0	0			0
19	Depreciation expense	0	0			0
20	Insurance expense	0	0			0
21	Interest income	0	0			0
22		348000	-348000	0	0	0

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Answer 1

Solution:

	A	B	C	D	E	F
S. no.	Account Name	Trial balance debit	Trial balance (credit)	Adjustment debit	Adjustment (credit)	Adjusted Trial balance debit/(credit) balance
2	Cash	$1,000.00	$0.00			$1,000.00
3	Interest receivable	$0.00	$0.00	$300.00		$300.00
4	Accounts receivable	$25,000.00	$0.00		-$855.00	$24,145.00
5	Allowance for doubtful accounts	$0.00	-$2,500.00	$855.00	-$750.00	-$2,395.00
6	Prepaid expenses	$1,000.00	$0.00	$5,000.00	-$650.00	$5,350.00
7	Property, plant and equipment	$20,000.00	$0.00			$20,000.00
8	Accumulated depreciation - property, plant and equipment	$0.00	-$10,000.00		-$1,500.00	-$11,500.00
9	Notes receivable	$20,000.00	$0.00			$20,000.00
10	Accounts payable	$0.00	-$33,000.00			-$33,000.00
11	Taxes payable	$0.00	-$1,000.00		-$2,000.00	-$3,000.00
12	Equity	$0.00	-$1,500.00			-$1,500.00
13	Sales	$0.00	-$300,000.00			-$300,000.00
14	Cost of goods sold	$195,000.00	$0.00			$195,000.00
15	Salaries, office, and general expenses	$75,000.00	$0.00			$75,000.00
16	Rent expense	$10,000.00	$0.00		-$5,000.00	$5,000.00
17	Tax expense	$1,000.00	$0.00	$2,000.00		$3,000.00
18	Bad debt expense	$0.00	$0.00	$750.00		$750.00
19	Depreciation expense	$0.00	$0.00	$1,500.00		$1,500.00
20	Insurance expense	$0.00	$0.00	$650.00		$650.00
21	Interest income	$0.00	$0.00		-$300.00	-$300.00
	Total	$348,000.00	-$348,000.00	$11,055.00	-$11,055.00	$0.00