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Miller Corp. has reported pre-tax income of $250,000 for calendar 2020, before considering the five items...

Miller Corp. has reported pre-tax income of $250,000 for calendar 2020, before considering the five items below. Prepare the adjusting entries needed at December 31, 2020 in order to correctly state the 2020 pre-tax income. If no entry is needed, write NONE.

1.    Interest on a $42,000, 7%, six-year note payable was last paid on September 1, 2020.

2.    On May 31, 2020, Melody entered into a contract to provide services to a customer for eighteen months beginning June 1. The customer paid the $18,000 fee in full on June 1 and Maison credited it to Service Revenue.

3.    On August 1, 2020, Maison paid a year’s rent in advance on a warehouse, and debited the $48,000 payment to Prepaid Rent.

4.    Depreciation on office equipment for 2020 is $17,000.

5.    On December 18, 2020, Maison paid the local newspaper $1,000 for an advertisement to be run in January of 2021, debiting it to Prepaid Advertising.

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Expert Solution

Adjusting entries for Miller Corp. are as follows :

1 ) Interest paid upto September 1, 2020 was already taken into account in pre tax income. But interest due from September 1, 2020 to December 31 , 2020 on $42,000, 7%, six-year note is to be charged to profit and loss account. Then interest due is 42000 x 7/12 x 4/12 = $980. Then adjusting entry will be

  

2) Accrued service revenue for the year ended December 31 , 2020 is from June 1 2020 to December 31 2020. It is for 7 months . So accrued service revenue is 18000 x 7/18 = $7000. But full service revenue received is credited. So profit to be reduced by 18000 - 7000 = 11000.

3) From August 1 2020 to December 31 2020 , rent due is 48000 x 5 /12 = $20000. So this amount of $20000 to be charged to profit and loss account.

  

4) Depreciation on office equipment to be charged to profit and loss account

  

5) Prepaid Advertising is debited and its correctly done because this is not corresponding to the financial ended December 31 2020. So no adjustment entry is needed .

  

All above adjustment entries are done with respect to correctly state the 2020 pre-tax income.

  

ekkarill92 answered 1 year ago
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