In: Accounting
Problem 3-3 A review of the ledger of Bonita Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries. 1. Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive $800 each per week, and three employees earn $550 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December. 2. Unearned Rent Revenue $414,960. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,720 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease. Date Term (in months) Monthly Rent Number of Leases Nov. 1 6 $6,700 5 Dec. 1 6 $6,770 4 3. Prepaid Advertising $15,600. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below. Contract Date Amount Number of Magazine Issues A650 May 1 $7,200 12 B974 Oct. 1 8,400 24 The first advertisement runs in the month in which the contract is signed. 4. Notes Payable $58,300. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.
Adjusting Entries:
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
31-Dec |
Salaries Expense |
$2,260 |
||
Salaries Payable |
$2,260 |
|||
(To record unpaid salaries) |
||||
De 31 |
Unearned Rent Revenue |
$94,080 |
||
Rent Revenue |
$94,080 |
|||
(To recognize rent revenue earned during the period) |
||||
31-Dec |
Advertisement expense |
$5,850 |
||
Prepaid advertisement expense |
$5,850 |
|||
(To record advertisement expense) |
||||
31-Dec |
Interest Expense |
$3,498 |
||
Interest Payable |
$3,498 |
|||
(To record interest expense on note payable - 58,300 x 12% x 6/12 = 3,498) |
Computations –
Two days salary-
For 5 employees:
Total weekly salary for 5 employees = $800 x 5 = $4,000
Daily salary for 5 employees = $4,000/5 days = $800 per day for 5 employees
Two days salary for 5 employees = 2 x $800 = $1,600
For 3 employees:
Total weekly salary for 3 employees = $550 x 3 = $1,650
Daily salary for 3 employees = $1,650/5 = $330 per day
Two days salary for 3 employees = 2 x $330 = $660
Hence, salaries and wages payable = $1,600 + $660 = $2,260
Nov1-
Two months lease for 5 leases at $6,700 per month = 6,700 x 5 x2 = $67,000
Dec 1 –
One month lease for 4 leases at $6,770 per month = 6,770 x 4 x 1 = $27,080
Total lease rent revenue earned as on December 31 = $94,080
Note: The security deposit is not recorded under unearned rent revenue.
A650 May1$7,200 – expense is for 8 issues out of 12 issues = 7,200 x 8/12 = $4,800
B974 Oct 1$8,400 – expense is for 3 issues out of 24 issues (Oct1 – Dec 31) = 8,400 x 3/24 = $1,050