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In: Accounting

The following trial balance before adjustments is for Snowcrest Ltd. on December 31, 2016: Debits Credits...

The following trial balance before adjustments is for Snowcrest Ltd. on December 31, 2016:

	Debits	Credits
Cash	$ 10,000
Inventory	24,000
Advances to employees	2,000
Supplies	3,000
Equipment	56,000
Accumulated depreciation, equipment		$ 4,000
Unearned revenue		6,000
Bank loan payable		20,000
Common shares		40,000
Retained earnings		9,000
Sales revenue		230,000
Cost of goods sold	130,000
Wages expense	34,000
Repairs and maintenance expense	25,000
Rent expense	6,600
Miscellaneous expense	15,000
Dividends declared	3,400
Totals	$309,000	$309,000

Data for adjusting entries:

1.As at December 31, 2016, 80% of the wages that had been paid in advance to the salespeople had been earned.

2.A count of the supplies at year end revealed that $600 of supplies were still on hand.

3.Depreciation on the equipment for 2016 was $1,000.

4.The unearned revenue was advance receipts for future deliveries of goods. By December 31, 2016, two thirds of these deliveries had been made.

5.The bank loan was a six-month loan taken out on October 1, 2016. The interest rate on the loan is 9%, but the interest is not due to be paid until the note is repaid on April 1, 2017.

6.Salaries owed at year end and not yet recorded were $500.

7.The rent expense figure includes $600 paid in advance for January 2017.

8.Income tax for the year should be calculated using a tax rate of 25%. (Hint: After you finish the other adjusting entries, determine the income before income tax and then calculate the tax as 25% of this amount.)

Required

Prepare the adjusting entries for the year 2016.

Expert Solution

Adjusting entries for the year 2016 are as prepared below:

Date	Particulars	L.F	Amount ($)	Amount ($)
1	Wages Expense		1,600
	Advances to employees			1,600
	(For 80% wages earned)

2	Supplies Expense		2,400
	Supplies			2,400
	(for supplies expensed)

3	Depreciation Equipment		1,000
	Accumulated dep-Equipment			1,000
	(For depreciation on equipment)

4	Unearned Revenue		4,000
	Service Revenue (6,000*2/3)			4,000
	(for unearned revenue earned)

5	Interest Expense (20,0009%3/12)		450
	Interest payable			450
	(for bank loan interest accrued)

6	Salaries Expense		500
	Salaries payable			500
	(for salary expense recorded)

7	Prepaid Rent		600
	Rent Expense			600
	(Fot rent prepaid for january 2017)

8	Income tax Expense		4512.5
	Income tax payable			4512.5
	(for income tax recorded)

Working:

Income Statement
Sales Revenue (230,000+4,000)	234,000
Less:
Cost of goods sold	130,000
Wages expense (34,000+1,600)	35,600
Supplies Expense	2,400
Depreciation Expense	1,000
Interest Expense	450
Salaries Expense	500
Repairs and maintenance expense	25,000
Rent expense (6,600-600)	6,000
Miscellaneous expense	15,000
	215,950
Income before tax	18,050
Income tax (18,050*25%)	4512.5

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