Question

A partial trial balance of Novak Corporation is as follows on December 31, 2021. Dr. Cr. Supplies $2,600 Salaries and wages payable $1,300 Interest Receivable 5,000 Prepaid Insurance 89,600 Unearned Rent 0 Interest Payable 14,900 Additional adjusting data:

1. A physical count of supplies on hand on December 31, 2021, totaled $1,000.

2. Through oversight, the Salaries and Wages Payable account was not changed during 2021. Accrued salaries and wages on December 31, 2021, amounted to $4,700.

3. The Interest Receivable account was also left unchanged during 2021. Accrued interest on investments amounts to $4,200 on December 31, 2021.

4. The unexpired portions of the insurance policies totaled $70,800 as of December 31, 2021.

5. $25,800 was received on January 1, 2021, for the rent of a building for both 2021 and 2022. The entire amount was credited to rent revenue.

6. Depreciation on equipment for the year was erroneously recorded as $4,500 rather than the correct figure of $45,000.

7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,400 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment. Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2021? (Ignore income tax

Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2021? (Ignore income tax considerations.)

Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

1.		Depreciation on equipment for the year was erroneously recorded as $4,500 rather than the correct figure of $45,000.
2.		A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,400 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Assuming that the books have not been closed:

Sr No	Accounts	Debit	Credit
1	Supplies expense	$1,600
	Supplies ($2,600 - $1,000)		$1,600
2	Salaries and wages expense	$4,700
	Salaries and wages payable		$4,700
3	Interest Receivable	$4,200
	Interest Revenue		$4,200
4	Insurance expense ($89,600 - $70,800)	$18,800
	Prepaid Insurance		$18,800
5	Rent revenue ($25,800 / 2)	$12,900
	Unearned rent		$12,900
6	Depreciation expense ($45,000 - $4,500)	$40,500
	Accumulated depreciation		$40,500
7	Retained earnings	$6,400
	Accumulated depreciation		$6,400

Assuming that the books have been closed:

Sr No	Accounts	Debit	Credit
1	Retained earnings	24300
	Deferred tax liability (40,500 * 40%)	16200
	Accumulated depreciation - Equipment (45,000 - 4,500)		40500
2	Retained earnings	3840
	Deferred tax liability (6,400 * 40%)	2560
	Accumulated depreciation - Equipment		6400