Question

Adjusting journal entries from the following?

1

On March 1, 2016, ABC purchased a one-year liability insurance policy for $27,000.

Upon purchase, the following journal entry was made:

Dr Prepaid insurance

27,000

Cr Cash

27,000

The expired portion of insurance must be recorded as of 12/31/16.

Notice that the expired portion from March through November has been recorded already.

Make sure that the Prepaid Insurance balance after the adjusting entry is correct.

2

Depreciation expense must be recorded for the month of December.

The building was purchased on February 1, 2016 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000.

The method of depreciation for the building is straight-line.

The equipment was purchased on February 1, 2016 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800.

The method of depreciation for the equipment is double-declining balance.

Depreciation has been recorded for the building and equipment for months February through November.

3

On December 1, 2016, XYZ Co. agreed to rent space in ABC's building for $4,500 per month,

and XYZ paid ABC on December 1 in advance for the first three months' rent.

The entry made on December 1 was as follows:

Dr Cash

13,500

Cr Unearned rent revenue

13,500

The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/16.

4

Per timecards, from the last payroll date through December 31, 2016, ABC's employees have worked a total of 200 hours.

Including payroll taxes, ABC's wage expense averages about $20 per hour. The next payroll date is January 5, 2017.

The liability for wages payable must be recorded as of 12/31/16.

5

On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable.

This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%.

The entry made on November 30 to record the borrowing was:

Dr Cash

40,000

Cr Notes payable

40,000

On February 28, 2017 ABC must pay the bank the amount borrowed plus interest.

Assume the beginning balance for Notes Payable is correct.

Interest through 12/31/16 must be accrued on the $40,000 note.

6

ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete

physical inventory at year-end. A physical count was taken on December 31, 2016, and the inventory on-hand at

that time totaled $70,000, which reflects historical cost. Record the adjusting entry for properly recognizing

2016 Cost of Goods Sold. Hint: This was the first year of operations, so beginning inventory balance is zero.

Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level.

A review of inventory data further indicated that the current retail sales value of the ending inventory is $60,000 and estimated costs of

completion and shipping is 10% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory

using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting

for adjustments of inventory to market value.

7

It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined

that their intangible asset might be impaired on December 31, 2016. Record the impairment adjustment, if any.

The expected future undiscounted net cash flows for this intangible asset totals $48,000, and the fair value of the asset is $45,000.

8

On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury

stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16,

ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock.

To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate

Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook

or Chapter 18 of your Intermediate Accounting textbook for a review.)

9

On 12/31/16, ABC issued 10,000 shares of $1 par value common stock at the closing market price of $10 per share. Prepare ABC's journal entry

to reflect the issuance of the stock on 12/31/16. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for

excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate

Accounting textbook for a review.)

10

On 7/1/16, ABC sold 10% bonds having a maturity value of $700,000 for $756,773.50, resulting in an effective yield of 8%. The bonds are

dated 7/1/16, and mature 7/1/21. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of

amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/16.

Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense.

11

ABC Corporation prepares an aging schedule on 12/31/16 that estimates total uncollectible accounts at $75,000. Assuming that the allowance

method is used, prepare the entry to record bad debt expense for the calendar year.

Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes":

12

Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.

However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full

on the return's March 15, 2017 due date.

ABC's income tax rate is 35%. The entire year's income tax expense was estimated at the beginning of 2016 to be $108,000,

so January through November income tax expense recognized amounts to $99,000 (11/12 months).

Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents

income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.

Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment

so that the entire year's tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November).

Answer 1