Question
In: Accounting
(Note this question is 4.3 in the Pre-recorded Tutorial Questions) The financial year end for Riverwood...
(Note this question is 4.3 in the Pre-recorded Tutorial Questions) The financial year end for Riverwood Ltd is 30 June.
a. Prepaid insurance as at 1 July 2015 was $4,000. This represents the cost of one year’s insurance policy that expires on 30 June 2016.
b. Commissions to sales personnel for the five day working week ending 2 July 2016, totaling $9,600, will be paid on 2 July.
c. Sales revenue for the year included $570 of customer deposits for products that have not yet been shipped to them.
d. A total of $900 worth of stationery was charged to the office supplies expense during the year. On 30 June about $490 worth of stationery is still considered useful for next year.
e. The company has a bank loan and pays interest annually (in arrears) on 31 December. The estimated total interest cost for the calendar year ended 31 December 2016 is $500.
Required: (a.) Show the effect of each of the situations above (a. – e.) on the accounting equation on 30 June 2016.
(b.) Provide the adjusting journal entry for each of the situations above (a. – e.) on 30 June 2016.
Solutions
Expert Solution
| a. | Effect of events on the accounting equation | ||||||||||||
| Event | Assets | = | Liabilities | Stockholder's equity | Account titles for retained earnings | ||||||||
| Prepaid insurance | + | Office supplies | = | Sales salaries payable | + | Unearned revenue | + | Interest payable | Retained earnings | ||||
| a | -4000 | -4000 | Insurance expense | ||||||||||
| b. | 5760 | -5760 | Sales salaries expense | ||||||||||
| c. | 570 | -570 | Sales revenue | ||||||||||
| d. | 410 | 410 | Office supplies expense | ||||||||||
| e. | 250 | -250 | Interest expense | ||||||||||
| b. | Adjusting entries: | ||||||||||||
| Ref. | Account titles and explanation | Debit | Credit | ||||||||||
| a. | Insurance expense | 4000 | |||||||||||
| Prepaid insurance | 4000 | ||||||||||||
| (Insurance expired) | |||||||||||||
| b. | Sales salaries expense | 9600*(3/5) | 5760 | ||||||||||
| Sales salaries payable | 5760 | ||||||||||||
| (Commission to sales personnel due for 3 days | |||||||||||||
| Excluding July 1 and 2) | |||||||||||||
| c. | Sales revenue | 570 | |||||||||||
| Unearned revenue | 570 | ||||||||||||
| (Customer deposits recorded properly) | |||||||||||||
| d. | Office supplies | (900-490) | 410 | ||||||||||
| Office supplies expense | 410 | ||||||||||||
| (Office supplies recorded properly) | |||||||||||||
| e. | Interest expense | (500/2) | 250 | ||||||||||
| Interest payable | 250 | ||||||||||||
| (Interest due for 6 months) | |||||||||||||
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