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In: Accounting

The following list of accounts and their balances represents the unadjusted trial balance of A$AP LLC...

The following list of accounts and their balances represents the unadjusted trial balance of A$AP LLC at
October 31, 2017 the end of their fiscal year:
Cash $ 6,550
Accounts Receivable 60,000
Inventory 58,000
Prepaid Insurance 7,500
Notes receivable ( 9 % ,5 year note due 6/1/2022) 20,000
Land 10,000
Plant & Equipment 80,000
Accounts Payable 38,810
Prior Period Adjustment (refund of 2014 taxes) 12,000
Common Stock 140,000
Retained Earnings 80,660
Sales 236,826
Rental Expense 13,991
Cost of Goods Sold 170,400
Repairs & Maintenance 15,617
Entertainment expense 7,500
Miniature golf expense 500
DWI fines 5,000
Salaries & Wages 45,600
Interest Expense 2,500
Advertising Expense 3,000
Miscellaneous Expense 1,098
Additional data:
1. On October 1, 2017, A$AP received $13,500 rent from its lessee for a 12-month lease beginning on
that date, crediting Rent Expense.
2. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year are
depreciated at half this rate. On 10/31/16, the balance of Plant & Equipment was $85,000. During the
2017 fiscal year $20,000 of depreciable plant & equipment was charged to Inventory.
3. A$AP estimates that 5% of the Accounts Receivable balances on 10/31/17 will become uncollectible.
On 10/28/17, the bookkeeper incorrectly credited Sales for a receipt on account in the amount of
$10,000.
4. Per a physical inventory, inventory on hand at 10/31/17 was $95,000.
5. Prepaid insurance contains the premium costs of two policies: Policy A, original cost of $4,500,
3-year term taken out on 7/1/16; Policy B, original cost of $3,000, 2-year term, taken out on 4/1/17.
6. On 5/31/16, A$AP rented a warehouse for $1,100 per month. No rental payments were ever made.
7. A$AP likes to play miniature golf. He purchased five coupon books for $40 each. Each book
contains ten coupons that enable the holder to play one round of golf. At the end of the fiscal year 25
tickets were unused.
8. In December the company received and recorded $45,000 in advance payments for the sale of a
A$AP doll. Shipments of this doll will take place during the first week in December.
9. A$AP failed to bill certain customers for $2,000 relating to services scheduled for election day.
10. Entertainment expense represents a donation to The Salvation Army for their annual Thanksgiving
meals.
11. The company did not obtain the annual permits to operate. The fee of $2,500 covers the calender
year.
Required:
(a) All necessary adjusting/correcting entries in accordance with GAAP using the information above.
(b) Indicate in the right margin using an R the entries that are candidates for reversal.

Expert Solution

1.Rent income received cannot be credited against rental income. R

the entry wrongly passed was Bank A/c to Rent Expense A/c 13500 so, a reversal entry: Rent Expense A/c to Rental Income A/c 13500 must be pass to reverse the wrong effect and give correct one.

2.Closing 85000- Opening 80000= 5000. this 5000 must be 8500 from depreciation on opening and rest 3500 on termination. the asset of 20000 shall be added to assetd A/c and deducted from inventory and depreciation shall be charged accordingly.

Entry: Plant & Equipment A/c .. Dr to Inventory A/c 20000 R

3. A credit note of 10000 shall be issued. Entry of reversal shall be Sales A/c .. Dr to Debtor A/c 10000 R

& also pass a entry of correct receipt against respective debtor. Therefore, debtors at the end shall be: 60000-10000-10000=40000: 40000 * 5%=2000. Baddebts Entry: Bad Debts A/c ..Dr to Provision for bad Debts A/c 2000.

4. Inventory of 95000 of item per on hand shall be added to the account. The balance in the inventory account shall be: 58000- 20000wrongly added+95000=133000.

5. you have created an asset by paying prepaid insurance. balace in account is 7500. so, an expense entry for: a) policy A: Expense accruing this year= 4500/3*4/12=500 & b) policy B:Expense accruing this year= 3000/2*7/12=875 shall be passed. Entry shall be: Expense A/c / P & L A/c ..Dr to Prepaid Insurance A/c (500+875)=1375.

6. Warehouse was rented from 31/5/2016 . Therefore, entry shall be: Rent (warehouse) A/c .. Dr to Bank A/c (5*1100)=5500.

7. cost shall be first recorded as an asset (prepaid) in the books. 1 coupon costs 40$ / 10 coupons per book =4 $

and at the year end you have only 25 coupons left so its cost shall be 25*4= 100$.

Entry: Pre-paid golf expenses A/c to Cash A/c (40*5)=200 : Golf expense A/c to Pre-paid golf expenses A/c 100.

8.Entry Shall be reversed. Advance Received A/c..Dr 45000 Cash A/c ..Dr 45000 to Advance Payment A/c 45000 to Sales A/c 45000. R

9. They shall be billed as Accounts Receivables i.e Debtors.

10. Entertainment Expense are basically meant for employees . & as the situation is indicated in question it completely represents donation & also to claim tax exemption. Entry shall be reversed. Donation A/c .. Dr to Entertainment Expenses A/c. 7500 R

11. This shall be recrded as a prepaid Expense. whole amount of 2500 shall be shown as a prepaid expense . R

ekkarill92 answered 2 years ago

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