Question

Brewer Trading Company has a preliminary figure for earnings of $500,000, for the year ended 31 December 2017. The company also has provided the following information in relation to its annual financial information.

a. The company has a bank loan outstanding for $400,000, which has been outstanding for the entire year. The interest has not been paid or recorded for the final quarter. Interest is based on an annual rate of 4%.

b. Property tax of $24,000 was paid in September, and were for the 12-month period starting on 1 October. The amount was expensed in September.

c. The office supplies account has a balance of $1,300. A physical count indicates $500 of office supplies on hand.

d. A customer paid $60,000 on an outstanding account receivable in December. This amount was credited to sales, in error.

e. Depreciation of equipment in the amount of $32,800 has not been recorded.

f. Accounting fees paid, in the amount of $15,200, were debited to dividends instead of the Accounting Fee Expense account.

g. A customer paid $50,000 as a deposit in June. This was credited to unearned revenue, but the transaction was completed in October, and the goods delivered. Cost of goods sold was correctly recorded at that time, but the unearned revenue was not changed.

h. At the beginning of the year, there was a balance of $4,480 in the prepaid insurance account, for a policy that will expire at the end of February 2018. During the year, a second policy for different coverage came into effect on June 1.This policy cost $9,540 and covers 18 months. The payment was debited to insurance expense when it was made.

i. No income tax has been recorded, but the tax rate is 25%.

Required:

Journalize each of the above transactions (Descriptions for each journal entry are not necessary).

Answer 1

		Date	Account titles and explanations			Debit	Credit
		2017
	a.	31-Dec	Interest expense		(400000*4%*3/12)	4000
			Interst payable				4000
			(Being interest outstanding for the last
			quarter)
	b.	31-Dec	Prepaid property tax		(24000/12)*9	18000
			Property tax expense				18000
			(Property tax paid in advance for 9 months)
	c.	31-Dec	Supplies expense		(1300-500)	800
			Supplies				800
			(Supplies used)
	d.	31-Dec	Sales			60000
			Accounts receivable				60000
			(Rectificatied error of crediting sales instead
			of accounts receivable)
	e.	31-Dec	Depreciation expense			32800
			Accumulated depreciation				32800
			(Depreciation expenses recorded)
	f.	31-Dec	Accounting Fee Expense			15200
			Dividend				15200
			(Rectificatied error of Debiting dividend instead
			of Accounting fee)
	g.	31-Dec	Unearned revenue			50000
			Sales				50000
			(Error in unearned revenue rectified)
	h.	31-Dec	Insurance expense		(4480/14)*12	3840
			Prepaid insurance				3840
			(opening balance in prepaid expense transferred
			as current year expense to the extent of 12 months)
		31-Dec	Prepaid insurance		(9540/18)*7	3710
			Insurance expense				3710
			(Prepaid expenses recoreded by rectifying error)
	i.	31-Dec	Tax expenses		(Note:1)	113768
			Tax payable				113768
			(Tax expenses recorded)
		Notes:
		1. Computation of tax payable:
		Earnings before adjustment				500000
		Effect of adjustments
		a.	Reduction by			-4000
		b.	Increase by			18000
		c.	Reduction by			-800
		d.	Reduction by			-60000
		e.	Reduction by			-32800
		f.	Reduction by			-15200
		g.	Increase by			50000
		h.	Reduction by			-3840
			Increase by			3710
		Earnings after adjustment				455070
		Tax @ 25%				113768