Question

Unadjusted Trial Balance
At December 31, 20XX
Acc. #	Account Name	Debits	Credits
100	Cash	$        66,000
110	Accounts receivable	160,000
115	Allowance for doubtful accounts		$          7,000
120	Inventory	50,000
135	Prepaid insurance	27,000
136	Prepaid advertising	-
150	Land	235,000
160	Building	240,000
165	Accumulated depreciation - building		54,000
170	Equipment	150,000
175	Accumulated depreciation - equipment		41,250
190	Notes receivable	155,000
195	Interest receivable	-
200	Accounts payable		135,000
215	Interest payable		-
219	Income tax payable		-
230	Accrued liabilities		32,000
240	Unearned revenue		65,000
250	Notes payable - current portion		-
255	Notes payable - long-term portion		100,000
270	Bonds payable		100,000
300	Common stock		500,000
310	Retained earnings		21,000
350	Dividends	5,000
400	Sales		1,309,750
450	Interest revenue		86,000
500	Cost of goods sold	616,000
510	Administrative and general expenses	97,000
515	Insurance expense	-
520	Selling expenses	194,000
531	Depreciation expense - building	-
532	Depreciation expense - equipment	-
550	Interest expense	60,000
599	Income tax expense	-
600	Loss on sale of equipment	60,000
910	Loss from operation of discontinued	75,000
	segment of business
915	Loss from disposal of discontinued	261,000
	segment of business
		$ 2,451,000	$ 2,451,000

The single compound journal entry for annual depreciation of building and equipment needs to be recorded. All buildings and equipment owned by the company are depreciated according to the straight-line method of depreciation. Kurek Corporation never assigns residual values to its buildings or equipment, and buildings are depreciated over 20 years and equipment is depreciated over 16 years.

When reviewing the unadjusted trial balance as part of the review for needed prepayment (deferral) adjusting journal entries, it was determined that $55,500 of the services for which the $65,000 unearned revenue item was initially recorded have since been performed.

The work performed on the unearned revenue item referenced in journal entry #2 reminded the CFO of Kurek Corporation that a deposit of $60,000 was received on April 1, 20XX for 12 monthly deliveries set to begin on April 15, 20XX and taking place on the 15^th of each of the subsequent months until the contract expired. When the cash payment was received on April 1, the following journal entry was recorded:

Db. Cash                                       $60,000

        Cr. Sales                                                                $60,000

The prepaid insurance item in the unadjusted trial balance was recorded when a $27,000 cash payment was made on September 1, 20XX for insurance services to be received over the period of September 1, 20XX through August 31, 20X1.

On December 1, 20XX a $20,000 cash payment was made to Comcast Cable Co. for 5 television-commercial-spots that were to air over the course of the next two months. 3 of the 5 spots paid for were aired during December. On December 1, when the cash payment was made, the following journal entry was recorded:

Db. Selling expenses    $20,000

        Cr. Cash                                                                $20,000

Unpaid and unrecorded interest charges on the bonds and notes payable amount to $7,500.

The $155,000 notes receivable was issued and recorded on June 1, 20XX. The note is a two year note with a stated interest rate of 12.0%. All interest will be received on the date of maturity along with the repayment of the principle. None of the interest pertaining to this note has yet been recorded during 20XX.

The $100,000 notes payable currently recorded entirely as long-term is being paid off in five equal $20,000 installments occurring annually on October 1. As a result, a portion of this $100,000 needs to be reclassified as short-term, since some of it is due within the next twelve months.

After completing the income statement for the year it was determined that the income tax effect for the year was a “net” $17,352 (“net” makes reference to the fact that there are multiple income tax items embedded within the income statement as a result of certain “net of tax” items). The income tax payment to the government will be made on March 15, 20X1.

General Journal

J1

Entry #

Date

Account Names

Ref.

Debit

Credit

1

To record annual depreciation on building and equipment

2

To record service rendered to a customer that originally paid cash in advance of service

3

To eliminate from sales the remainder of a deposit for which no services have yet been rendered

4

To record portion of insurance prepayment that relates to services received

5

To record portion of advertising charges for which service has yet been received

6

To record interest charges on notes and bonds payable

7

To record interest associated with note receivable

8

To reclassify current portion of notes payable out of long-term balance

9

To record current year income tax effect

Answer 1

Sr. No	Date	Account name	Ref	Debit	Credit
1	31 Dec 20xx	Depreciation expense
		To Accumulated Depreciation (building) (240000/12)			12,000
		To Accumulated depreciation (equipment) (150000/16)			9,375
		To record annual depreciation on building and equipment
2	31 Dec 20xx	Unearned revenue		55,500
		Sales			55,500
		To record service rendered to a customer that originally paid cash in advance of service
3	31 Dec 20xx	Sales		15,000
		Unearned revenue			15,000
		To eliminate from sales the remainder of a deposit for which no services have yet been rendered
4		Insurance expense		6,750
		Prepaid insurance			6,750
		To record portion of insurance prepayment that relates to services received
5		Prepaid expenses		8,000
		Selling expenses			8,000
		To record portion of advertising charges for which service has yet been received
6		Interest expense		7,500
		Interest payable			7,500
		To record interest charges on notes and bonds payable
7		Interest receivable		10,850
		Interest revenue			10,850
		To record interest associated with note receivable
8		Notes payable - long-term portion		20,000
		Notes payable - current portion			20,000
		To reclassify current portion of notes payable out of long-term balance
9		Income tax expense		17,352
		Income tax payable			17,352
		To record current year income tax effect