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Assessing Financial Statement Effects of Transactions and Adjustments The following information relates to December 31 accounting...

Assessing Financial Statement Effects of Transactions and Adjustments

The following information relates to December 31 accounting adjustments for Fulton Fast Print Company. The firm’s fiscal year ends on December 31.

1. Weekly salaries for a five-day week total $3,600, payable on Fridays. December 31 of the current

year is a Tuesday.

2. Fulton Fast Print has $20,000 of notes payable outstanding at December 31. Interest of $200 has

accrued on these notes by December 31 but will not be paid until the notes mature next year.

3. During December, Fulton Fast Print provided $900 of printing services to clients who will be billed on

January 2. The firm uses the fees receivable account to reflect amounts earned but not yet billed.

4. Starting December 1, all maintenance work on Fulton Fast Print’s equipment is handled by Richard-

son Repair Company under an agreement whereby Fulton Fast Print pays a fixed monthly charge of

$400. Fulton Fast Print paid six months’ service charge of $2,400 cash in advance on December 1

and increased its Prepaid maintenance account by $2,400.

5. The firm paid $900 cash on December 15 for a series of radio commercials to run during December

and January. One-third of the commercials aired by December 31. The $900 payment was recorded

in its prepaid advertising account.

6. Starting December 16, Fulton Fast Print rented 800 square feet of storage space from a neighboring

business. The monthly rent of $0.80 per square foot is due in advance on the first of each month.

Nothing was paid in December, however, because the neighboring business agreed to add the rent

for one-half of December to the January 1 payment.

7. Fulton Fast Print invested $5,000 cash in securities on December 1 and earned interest of $38 on

these securities by December 31. No interest will be received until January.

8. Annual depreciation on the firm’s equipment is $2,175. No depreciation has been recorded during

the year.

Required

Prepare Fulton Fast Print Company’s accounting adjustments required at December 31 using the financial

statement effects template

Solutions

Expert Solution

Particulars Debit Credit
1) Salaries and Wages Expense $ 1,440.00
To Salaries and Wages Payable $ 1,440.00
($ 3600 x 2/5)
2) Interest Expense $    200.00
To Interest Payable $    200.00
3) Fees Receivable $    900.00
To Fees Earned $    900.00
4) Maintenance Expense $    400.00
To Prepaid Maintenance $    400.00
($ 2400/6)
5) Advertising Expense $    300.00
To Prepaid Advertising $    300.00
($ 900 x 1/3)
6) Rent Expense $    320.00
To Rent Payable $    320.00
(800 x $ 0.80 x 1/2)
7) Interest Receivable $      38.00
To Interest Revenue $      38.00
8) Depreciation $ 2,175.00
To Accumulated Depreciation $ 2,175.00
Balance Sheet Income Statement
Non-Cash Contributed Earned
Cash Assets + Assets = Liabilities + Capital + Capital Revenue - Expenses = Net Income
1) $ 1,440.00 $(1,440.00) $ 1,440.00 $(1,440.00)
2) $    200.00 $    (200.00) $    200.00 $    (200.00)
3) $     900.00 $     900.00 $ 900.00 $     900.00
4) $    (400.00) $    (400.00) $    400.00 $    (400.00)
   
5) $    (300.00) $    (300.00) $    300.00 $    (300.00)
6) $    320.00 $    (320.00) $    320.00 $    (320.00)
7) $       38.00 $       38.00 $    38.00 $       38.00
8) $(2,175.00) $(2,175.00) $ 2,175.00 $(2,175.00)
First of all, be very clear about the questions requirement.
Question is asking to pass the "Adjusting Entries" at the end of the period and not the "Journal Entries" for the original transaction.
And, "Adjusting Entries" does not involve cash.
Explanations:
4) It says the amount of service charge has been paid in advance for a period of 6 months, starting from Dec 1.
So, at the time of passing original journal entries, cash was deducted and an asset was created.
But as we're passing the adjusting entries, cash account needs no more adjustments as the amount has
already been deducted previously.
We just need to recognize the amount of prepaid service charge that has expired at the end of December.
For this, Prepaid Service Charge shall be deducted and an expense shall be debited (refer the entry no. 4)
This is what I've done in the accounting equation.
5) It has been treated in a similar way as 4)
6) How it's supposed to be a "non-cash asset" ?
Half of the rent expense incurred during December
was not paid off, so it created a liability for the
company.
7) Interest earned but not received is a "non cash asset"
because no cash was received. But it's an income for the
month of December only, so its need to be recognized
(refer entry 7)
8) It's the adjusting entry related to depreciation buddy,
no cash is involved here, it's a non cash expense.
List of Accounts
Salaries and Wages Expense
Salaries and Wages Payable
Interest Expense
Interest Payable
Fees Receivable
Fees Earned
Maintenance Expense
Prepaid Maintenance
Advertising Expense
Prepaid Advertising
Rent Expense
Rent Payable
Interest Receivable
Interest Revenue
Depreciation
Accumulated Depreciation
Current Assets Current Liabilities Contra- Current Assets Equities
Fees Receivable Salaries and Wages Payable Accumulated Depreciation
Prepaid Maintenance Interest Payable Expenses Incomes
Prepaid Advertising Rent Payable Salaries and Wages Expense Fees Earned
Interest Receivable Interest Expense Interest Revenue
Maintenance Expense
Advertising Expense
Rent Expense
Depreciation

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