Question

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Pastina Company sells various types of pasta to grocery chains as private label brands. The company’s...

Pastina Company sells various types of pasta to grocery chains as private label brands. The company’s reporting year-end is December 31. The unadjusted trial balance as of December 31, 2021, appears below.

Account Title Debits Credits
Cash 33,600
Accounts receivable 41,800
Supplies 2,400
Inventory 61,800
Notes receivable 21,800
Interest receivable 0
Prepaid rent 2,000
Prepaid insurance 6,900
Office equipment 87,200
Accumulated depreciation 32,700
Accounts payable 32,800
Salaries payable 0
Notes payable 51,800
Interest payable 0
Deferred sales revenue 2,900
Common stock 71,700
Retained earnings 33,000
Dividends 5,800
Sales revenue 155,000
Interest revenue 0
Cost of goods sold 79,000
Salaries expense 19,800
Rent expense 11,900
Depreciation expense 0
Interest expense 0
Supplies expense 2,000
Insurance expense 0
Advertising expense 3,900
Totals 379,900 379,900


Information necessary to prepare the year-end adjusting entries appears below.

  1. Depreciation on the office equipment for the year is $10,900.
  2. Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $1,500.
  3. On October 1, 2021, Pastina borrowed $51,800 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
  4. On March 1, 2021, the company lent a supplier $21,800 and a note was signed requiring principal and interest at 9% to be paid on February 28, 2022.
  5. On April 1, 2021, the company paid an insurance company $6,900 for a two-year fire insurance policy. The entire $6,900 was debited to prepaid insurance.
  6. $800 of supplies remained on hand at December 31, 2021.
  7. A customer paid Pastina $2,900 in December for 1,554 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
  8. On December 1, 2021, $2,000 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022, at $1,000 per month. The entire amount was debited to prepaid rent.

Required: Prepare the necessary December 31, 2021, adjusting journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

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ANSWER

Year-end adjustments. Year-end adjustments are journal entries made to various general ledger accounts at the end of the fiscal year, to create a set of books that is in compliance with the applicable accounting framework.

The necessary December 31, 2021, adjusting journal entried are

Sl No Date Account and Calculation Debit credit
1 31-Dec Depreciation expense $10,900
Accumulated depreciation-equipment $10,900
2 31-Dec Salaries expense $1,500
Salaries payable $1,500
3 31-Dec Interest expense (51800*12%*3/12) $1,554
Interest payable $1,554
4 31-Dec Interest receivable (21800*9%*10/12) $1,635
Interest revenue $1,635
5 31-Dec Insurance expense (6900/24*9) $2,587.50
Prepaid insurance $2,587.50
6 31-Dec Supplies expense (2400-800) $1,600
Supplies $1,600
7 31-Dec No adjusting entry
8 31-Dec Rent expense $1,000
Prepaid rent $1,000

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