Question

What adjusting entry should Cosine Corporation make at December 31, 20xx, the end of its fiscal year, for the two following circumstances. A) Cosine received $12,000 on December 1 for an apartment that it leased for one year. B) Cosine pays wages of $5,000 each week. This year December 31 fell on a Wednesday.

Answer 1

A)

Since the lease rental is for 12 months, amount received will be divided into Income and Rent received in advance (liability)

Income will be recognized for the month of December, that is, 1 month

So, Amount of income

= Total amount received / Number of months for which amount received x Expired period

= $12,000 / 12 x 1

= $1,000

Journal Entry

At the time of receipt of amount

Cash                                         $12,000

    Rent received in advance              $12,000

(Being rent received in advance for 12 months)

On December 31

Rent received in advance    $1,000

    Rental Income                             $1,000

(Being rent of one month recognized as income)

B)

One week is for 5 days which is paid on Friday, So, wages per day

= Amount paid per week / Number of days in a week

= $5,000 / 5

= $1,000 per day

So, Expenses incurred till Wednesday (3 days)

= $1,000 x 3

= $3,000

Journal Entry on December 31

Wages Expenses    $3,000

    Outstanding wages    $3,000

(Being wages outstanding for 3 days as on December 31 now recognized)