Question

Bugatti Company has a September 30 fiscal year end and prepares adjusting entries on an annual basis. The trial balance included the following selected accounts:

Prepare and post adjusting, closing, reversing, and cash transaction entries.

Accumulated depreciation		$    4,250
Depreciation expense		0
Interest expense		3,333
Interest payable		0
Interest receivable		0
Interest revenue		0
Salaries expense		153,000
Salaries payable		0

Additional information for its September 30, 2021, year-end adjustments:

1. Bugatti has a two-year, 3.5% note receivable for $50,000 that was issued on April 1, 2021. Interest is payable every six months, on October 1 and April 1. Principal is payable at maturity. Bugatti collected the correct amount on October 1, 2021.
2. Accrued salaries as at September 30, 2021, were $2,400. Payroll totalling $3,000 was paid on October 2, 2021.
3. Bugatti has a five-year, 5% note payable for $80,000 issued in 2019. Interest is payable quarterly on January 31, April 30, July 31, and October 31 each year. Bugatti paid the correct amounts in 2021.
4. Depreciation expense for the year ended September 30, 2021, was $4,250.

Instructions

a. Prepare T accounts and record the September 30, 2021, balances.

b. Prepare and post adjusting journal entries for items 1 to 4 above.

c. Prepare entries to close these revenue and expense accounts. Post to the T accounts. (Note: Do not post to the Income Summary account.)

d. Prepare and post reversing journal entries on October 1, 2021, as appropriate.

e. Prepare and post the journal entries to record the cash transactions that occurred in October 2021. It is not necessary to post to the cash account.

Answer 1

Part a
Accumulated Depreciation
Debit		Credit
		Beginning Balance	$    4,250
		Sep 30	$    4,250
		Ending Balance	$    8,500
Depreciation Expense
Debit		Credit
Sep 30	$        4,250	c2	$    4,250
Ending Balance	$              -
Interest expense
Debit		Credit
Beginning Balance	$        3,333	c2	$    4,000
Sep 30	$           667
Ending Balance	$              -
		Oct 1	$        667
Interest Receivable
Debit		Credit
Sep 30	$           875
Ending Balance	$           875
		Oct 1	$        875
Salaries Expense
Debit		Credit
Beginning Balance	$   153,000	c2	$155,400
Sep 30	$        2,400
Ending Balance	$              -
		Oct 1	$    2,400
Interest Payable
Debit		Credit
		Sep 30	$        667
		Ending Balance	$        667
Oct 1	$           667
Interest Revenue
Debit		Credit
c1	$           875	Sep 30	$        875
		Ending Balance	$           -
Oct 1	$           875
Salaries payable
Debit		Credit
		Sep 30	$    2,400
		Ending Balance	$    2,400
Oct 1	$        2,400

Part b
Date	Account	Debit	Credit
30-Sep	Interest Receivable	$       875
	Interest Revenue		$        875
	(to record interest revenue for April to Sep)
	$50,000*3.5%*6/12
30-Sep	Salaries Expense	$    2,400
	Salaries Payable		$    2,400
	(to record accrued salaries)
30-Sep	Interest Expense	$       667
	Interest Payable		$        667
	(to record interest expense for aug-sep)
	$80,000*5%*2/12
30-Sep	Depreciation Expense	$    4,250
	Accumulated Depreciation		$    4,250
	(to record depreciation Expense)
Part c
c1	Interest Revenue	$       875
	Income Summary		$        875
	(to record revenue account closure)
c2	Income Summary	$163,650
	Salaries Expense		$ 155,400
	Interest Expense		$    4,000
	Depreciation Expense		$    4,250
	(to record close of expense account)
Part d
1-Oct	Interest Revenue	$       875
	Interest Receivable		$        875
	(To reverse interest adjusting entry)
1-Oct	Salaries Payable	$    2,400
	Salaries Expense		$    2,400
	(To reverse accrued salaries adjusting entry)
1-Oct	Interest payable	$       667
	Interest Expense		$        667
	(To reverse accrued interest adjusting entry)
Part e
1-Oct	Interest Revenue	$       875
	Cash		$        875
	(to record receipt of interest of last month)
2-Oct	Salaries Expense	$    3,000
	Cash		$    3,000
	(to record payment of salaries)
31-Oct	Interest Expense	$    1,000
	Cash		$    1,000
	(to record payment of interest for the quarter)
	$80,000*5%*3/12