A review of the ledger of Khan Company at 31 December 2012 produces the following data...

A review of the ledger of Khan Company at 31 December 2012 produces the following data pertaining to the preparation of annual adjusting entries.

1. Prepaid Insurance $9 800. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on 1 July 2011, for $6 000. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on 1 January 2012 for $4 800. This policy has a term of 2 years.

2. Unearned Subscriptions $49 000. The company began selling magazine subscriptions in 2012 on an annual basis. The magazine is published monthly. The selling price of a subscription is $50. A review of subscription contracts reveals the following

Subscription Date: Number of Subscription:

1 October 200 1 November 300 1 December 480 980 3. Notes Payable $40 000. This balance consists of a note for 6 months at an annual interest rate of 9%, dated 1 September. 4. Salaries Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $500 each per week, and three employees earn $800 each per week. 31 December is a Wednesday. Employees do not work weekends. All employees worked the last 3 days of December.

Instruction: Prepare the adjusting entries as at 31 December 2012.

Solutions

Expert Solution

Date	Account title	Debit	credit
31 December 2012
a	Insurance expense	4400
	Prepaid Insurance		4400
	[being insurance expired]

b	Unearned subscription revenue	7000
	Subscription revenue		7000

c	Interest expense	1200
	Interest payable		1200
	[Being interest accrued for 4 months :40000.094/12] [1Sep -31Dec]

d	Salaries and wage expense	2940
	Salaries and wage payable		2940

**Insurance expense:

Policy B4564 : 6000/3 = 2000

Policy A2958 = 4800/2 = 2400

Total : 4400

**Subscription revenue earned:

Month	Unearned revenue received	Months for which revenue is earned	Revenue earned out of 12 months
Oct	200*50=10000	3 [1Oct -31Dec]	10000*3/12= 2500
Nov	300*50=15000	2 [1Nov -31Dec]	15000*2/12= 2500
Dec	480*50= 24000	1 [1Dec- 31 Dec]	24000*1/12= 2000

			7000

**salary

	Total salary accrued
	Salary per day	3 days salaries accrued
5 employees	500/5=100	5* 100*3 = 1500
3Employees	800/5=160	3* 160*3 = 1440

		2940

ekkarill92 answered 2 years ago

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