Question

In: Accounting

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.

Solutions

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
Next > < Previous

Related Solutions

Magna Corp. reported earnings before income taxes of $2,700,000 in 20X9 when the tax rate was...
Magna Corp. reported earnings before income taxes of $2,700,000 in 20X9 when the tax rate was 40%. Additional information for the company for 20X9 is as follows: a. Golf club dues, $32,000 b. Depreciation expense, $63,000 c. Development costs incurred during year; capitalized for accounting purposes, $160,000 d. Warranty costs accrued during year, $36,000 e. Interest and penalty for late payment of payroll taxes, $40,000 f. CCA, $300,000 g. Amortization of capitalized development costs, $16,000 h. Costs incurred during year...
The records of Groot Corp. for calendar 2018 reflected the following correct pre-tax amounts: • gain...
The records of Groot Corp. for calendar 2018 reflected the following correct pre-tax amounts: • gain from discontinued operations, $50,000; • cash dividends declared and paid, $45,000; • retained earnings, January 1, 2018, $275,000, • correction of accounting error, $35,000 debit; • income before income taxes and before discontinued operations, $165,000. The average income tax rate of 40 % applies to all items except the dividends. Required 1. Calculate the December 31, 2018 ending balance of retained earnings.
Vigor Corporation reports a net income before tax for 2020 of $512,800, has a tax rate...
Vigor Corporation reports a net income before tax for 2020 of $512,800, has a tax rate of 21% and provides the following selected information (covers the three tax difference items) from its ledger as at December 31, 2019 and 2020:                                                                                                     2019             2020                         Equipment, at cost                                  900,000 DR 900,000 DR                         Accumulated depreciation, equipment    450,000 CR 525,000 CR                         Deferred Tax Asset                                   10,080 DR                   ?                         Warranty Liability                                     48,000 CR    56,000 CR                         Deferred Tax Liability                              47,250 CR                  ...
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $25,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Net operating working capital would increase by $25,000 initially, but it would be recovered at the end of the project's 5-year...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating Working capital would increase by $25,000 initially, but it would be recovered at the end of the project's...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. XYZ would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The net operating Working capital would increase by $25,000 initially, but it would be recovered at the end of the project's...
GreenSpruce Inc. reported income from continuing operations before tax of $2,774,500 during 2020. Additional transactions occurring...
GreenSpruce Inc. reported income from continuing operations before tax of $2,774,500 during 2020. Additional transactions occurring in 2020but not included in the $2,774,500 are as follows:1. The corporation experienced an insured flood loss of $124,000 during the year. 2.The sale of FV-NI investments resulted in a loss of $165,850. 3.When its president died, the corporation gained $155,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount...
AFS company reported the following information: Financial Statement Tax return income before Depreciation and income tax...
AFS company reported the following information: Financial Statement Tax return income before Depreciation and income tax 200,000   200,000 Depreciation Expense 45,000   72,000 The tax rate is 35% 1. Income tax for the financial statement is: 2. Income tax on the tax return is: 3. Which does this situation create, a deferred tax asset, or a deferred tax liability? 4. What is the amount of the deferred item? Please follow the answer and calculation processes. Thank you.
1> For calendar year 2018, Sol Corp reported depreciation of $500,000 in its income statement. On...
1> For calendar year 2018, Sol Corp reported depreciation of $500,000 in its income statement. On its 2018 income tax return, Sol reported depreciation of $900,000. Sol's income statement also included $220,000 accrued warranty expense that will be deducted for tax purposes when paid. Sol's enacted tax rates are 35% for 2018 and 2019, and 30% for 2020 and 2021. The depreciation difference and warranty expense will reverse over the next three years as follows: Depreciation Difference Warranty Expense 2019...
Oriole Company reported the following on its income statement: Income before income taxes $730000 Income tax...
Oriole Company reported the following on its income statement: Income before income taxes $730000 Income tax expense 270000 Net income $460000 An analysis of the income statement revealed that interest expense was $100000. Oriole Company's times interest earned was
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT