Question

ORIGINAL Question (This has been asked and answered on previous forums)

John's Boat Yard, Inc., repairs, stores, and cleans boats for customers. It is completing the accounting process for the year just ended on November 30. The transactions for the past year have been journalized and posted. The following data with respect to adjusting entries at year-end are available:

John's winterized (cleaned and covered) three boats for customers at the end of November, but did not record the service for $4,200.

On October 1, John's paid $1,680 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have been run except for three Thursdays in December to complete the 12-week contract.

John’s borrowed $258,000 at a 9 percent annual interest rate on April 1 of the current year to expand its boat storage facility. The loan requires John's to pay the interest quarterly until the note is repaid in three years. John's paid quarterly interest on July 1 and October 1.

The Johnson family paid John’s $4,080 on November 1 to store its sailboat for the winter until May 1 of the next fiscal year. John's credited the full amount to Unearned Storage Revenue on November 1.

John’s used boat-lifting equipment that cost $260,000; $26,000 was the estimated depreciation for current year.

Boat repair supplies on hand at the beginning of the current year totaled $18,100. Repair supplies purchased and debited to Supplies during the year amounted to $47,600. The year-end count showed $13,100 of the supplies on hand.

Wages of $5,300 earned by employees during November were unpaid and unrecorded at November 30. The next payroll date will be December 5 of the next fiscal year.

Current Questions: (Questions I am seeking help with - I am seeking explanations)

I am confused by this problem. The fiscal year for this company goes from November 30th to November 30th, from year to year? Is that correct?

We are then making adjusting entries to cover the remainder of the calendar year, which in this instance covers the month of December?

How is the answer to "C" regarding the payment of interest derived? I see that the company pays 9% interest on a $258,000 dollar loan, which equates to $21,600 dollars interest per year. It seems that the answer seeks the student to solely log two months interest or $3,600 dollars. But if the matter was paid on July 1st and Oct 1st, by the time of Nov. 30th would these transaction not have already been recorded??? What is going on here?

Also, specifcally with respect to part "F" concerning the cost of supplies - Would we not determine the unadjusted balance by combining the beginning balance ($18,100) + purchases ($47,600) to arrive at an unadjusted balance from which we would need to adjust down to the current level of supplies on hand ($13,100)? I do not understand how/why we would simply adjust from the beginning balance to the ending balance and assume that entries for the $47,600 dollars worth of supply purchases were not journaled and recorded. Are you able to explain this, as similar posts simply subtract beginning balance from ending balance and add entries to the ledger for the difference. (This differs from the text's example and I cannot tell what I should be reading within the context of the problem to know when to do what method.)

Answer 1

The fiscal year ends on Novemr 30. We need to make the adjusting entries for the year Ending Nov.30. only.

The entries for December do not arise. Calender year does not come into picture .

It is clearly metioned in the question that, the transactions for the year are posted. and the details of adjustments are given. This means the adjusting entries are not made and we have to record the adjusting entries.

All the ntries which are due ot be recorded as at November 30, need to be recorded.

Given below are the adjusting entries.

Date	Account Title	Debit	Credit
Nov.30	Accounts Receivable	4200
	Service revenue		4200
	(Revenue for the unbilled winterized three boats)
Date	Account Title	Debit	Credit
Nov.30	Advertising Expense	1260
	Prepaid Advertising		1260
	(Expense for 9 of the 12 weeks recorded) - (1,680/12)*9
Date	Account Title	Debit	Credit
Nov.30	Interest Expense *	3870
	Interest Payable		3780
	(Interest for Oct. And Nov.recorded which will be paid on Jan.1)
	Amount borrowed	258000
	Rate of interest	9%
	Annual interest	23220
	Interest for October and November *	3870
Date	Account Title	Debit	Credit
Nov.30	Unearned Storage Revenue	680
	Storage Revenue		680
	(Storage revenue for 1 month)
	Storage revenue $4,080 received for the period from November 1 to May 1. (Six months)
	Storage revenue for November = 4,080 /6 = $680
Date	Account Title	Debit	Credit
Nov.30	Depreciatio expense	26000
	Accumulated Depreciation - equipment		26000
	(Depreciation expense of the boat lifting equipment)
Date	Account Title	Debit	Credit
Nov.30	Supplies Expense	52600
	Supplies		52600
	(Use of supplies during the year)
	Balance of Supplies , beginning	18100
	Purchases os supplies during the year	47600
	Total	65700
	Balance of Supplies , ending	-13100
	Supplies used during the year *	52600
Date	Account Title	Debit	Credit
Nov.30	Wages Expense	5300
	Wages Payable		5300
	(Wages accrued and unpaid for November)