Question

X Company prepares monthly financial statements. The following transactions occurred during January:

1. On January 1, a one-year store rental lease was signed for a total of $38,400, and rent for the first 2 months was paid in advance.

2. On January 1, equipment was purchased for $55,000 with a down payment of $11,000 and a note for the remainder. The note along with annual interest of 7% was due in a year. The estimated life of the equipment is 10 years with a salvage value of $4,000.

3. Daily wages are $1,600 and are paid every Friday. The last day in January was a Monday.

8) The required adjusting entries on January 31 decreased net income by a total of ___.

9) The required adjusting entries on January 31 decreased total assets by a total of ___.

Answer 1

A

Cost of equipment

$55,000

B

Salvage value

$4,000

C

Equipment life

10

D=(A-B)/C

Annnual Depreciation

$5,100

E=D/12

Monthly depreciation

$425

F

Amount of Notes

$44,000

(55000-11000)

G

Interest rate

7%

H=F*G

Annual interest

$3,080

I=H/12

Monthly interest

$257

REQUIRED ADJUSTING JOURNAL ENTRY

Ref

Date

Account Title

Debit

Credit

1

Jan. 31

Rent expense

$        3,200

(38400/12)

Prepaid rent

$    3,200

2

Jan. 31

Depreciation expense

$425

((55000-4000)/10)*(1/12)

Accumulated depreciation

$425

2

Jan. 31

Interest expense

$           257

(55000-11000)*0.07*(1/12)

Interest payable

$        257

3

Jan. 31

Wage expenses

$1,600

( Assuming Saturday and Sunday no-working day. Wage expense=Monday's wages)

Wages payable

$1,600

Net Income decreases by:

Rent expense

$        3,200

Depreciation expense

$425

Interest expense

$           257

Wage expenses

$1,600

SUM

$        5,482

Decrease in net income

$        5,482

Decrease in total assets by:

Prepaid rent

$        3,200

Accumulated depreciation

$425

SUM

$        3,625

8)

Decreases net income by total of

$        5,482

9)

Decrease total assets by total of

$        3,625