Question

The trial balance of Northern Airlines at January 31 is shown. It was prepared after posting the recurring transactions for the month of January, but it does not reflect any month-end adjustments.

Northern Airlines

UNADJUSTED TRIAL BALANCE

January 31, 2016

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	75,100.00
2	Parts Inventory	50,000.00
3	Land	80,000.00
4	Buildings-Hangars	370,000.00
5	Accumulated Depreciation-Hangars		36,000.00
6	Equipment-Aircraft	650,000.00
7	Accumulated Depreciation-Aircraft		120,000.00
8	Tickets Sold in Advance		86,000.00
9	Capital Stock		500,000.00
10	Retained Earnings		481,100.00
11	Ticket Revenue		53,000.00
12	Maintenance Expense	20,000.00
13	Wage and Salary Expense	31,000.00
14	Totals	1,276,100.00	1,276,100.00

The following additional information is available:

a.	Airplane parts needed for repairs and maintenance are purchased regularly, and the amounts paid are added to the asset account Parts Inventory. At the end of each month, the inventory is counted. At the end of January, the amount of parts on hand is $36,100. Hint: What adjusting entry is needed to reduce the asset account to its proper carrying value? Any expense involved should be included in Maintenance Expense.
b.	The estimated useful life of the hangar is 20 years with an estimated salvage value of $10,000 at the end of its life. The original cost of the hangar was $370,000.
c.	The estimated useful life of the aircraft is ten years with an estimated salvage value of $50,000. The original cost of the aircraft was $650,000.
d.	As tickets are sold in advance, the amounts are added to Cash and to the liability account Tickets Sold in Advance. A count of the redeemed tickets reveals that $69,000 worth of tickets were used during January.
e.	Wages and salaries owed but unpaid to employees at the end of January total $7,500.
f.	Northern rents excess hangar space to other companies. The amount owed but unpaid to Northern at the end of January is $2,400.
g.	Assume a corporate income tax rate of 34%.

Required:

1.	Set up T accounts for each of the accounts listed on the trial balance. Set up any other T accounts that will be needed to prepare adjusting entries.
2.	Post the month-end adjusting entries directly to the T accounts; do not take time to put the entries in journal format first. Use the letters (a) through (g) from the additional information to identify each entry.
3.	Prepare a trial balance to prove the equality of debits and credits after posting the adjusting entries.

Answer 1

1)

T-Accounts:
DEBIT	AMOUNT$	CREDIT	AMOUNT$
Parts Inventory:
o/b	50000	a	13900
		CB	36100
Maintenance Expense:
o/b	20000	cb	33900
a	13900
Depreciation Account
b	18000	cb	78000
c	60000
Acc Dep - Hanger :
cb	54000	o/b	36000
		b	18000
Acc Dep - Aircrafts:
cb	180000	o/b	120000
		c	60000
Tickets sold in advance:
d	69000	o/b	86000
cb	17000
Ticket Revenue:
cb	122000	o/b	53000
		d	69000
Wage and Salary Expense:
o/b	31000	cb	38500
e	7500
wage and salary payable:
		e	7500
Rent Revenue:
		f	2400
Rent receivable:
f	2400
Tax expense :				(122000+2400-33900-78000-38500)*0.34=-8840
		g	8840
Tax credit receivable:
g	8840

Adjusted Trial Balance :
Accounts head	Debit $	Credit $
cash	75100
parts inventory	36100
rent receivable	2400
land	80000
buildings - Hangers	370000
acc dep - hangers		54000
Equipment-Aircraft	650000
Acc dep - aircraft		180000
Tickets sold in advance		17000
capital stock		500000
retained earnings		481100
ticket revenue		122000
rent revenue		2400
maintenance expense	33900
wage and salary expense	38500
Depreciation expense	78000
wage and salary payable		7500
Tax expense		8840
Tax credit receivable	8840
Total	1372840	1372840