Question

Chapter 4 – Continuing Case CC4-1 Modified

Adjusting the Accounting Records and then Some

Assume it is now December 31, 2017 and Nicole has just completed her first year of operations at Nicole’s Getaway Spa. After looking through her trial balance, she noticed that there are some items that have either not been recorded or are no longer up-to-date.

Nicole’s Getaway Spa is renting its space at a cost of $600 per month. On September 1, 2017, Nicole paid eight months’ rent in advance using cash. This prepayment was recorded in the account Prepaid Rent back in September.

The building, purchased at the beginning of the year for $47,000 cash, has estimated depreciation of $2,000 for 2017, but none has been recorded yet.

The Equipment purchased in Chapter 3 (i.e. May 30^th) for $18,500, has estimated depreciation of $5,000 for 2017, but none has been recorded yet.

Salaries and wages to the support staff at Nicole’s Getaway Spa have been paid up to December 26, 2017. The support staff worked both December 27^th and 28^th and will be paid on January 5, 2018. Salaries and wages amount to $1,000 per day. The spa was closed December 29-31^st.

The insurance policy, purchased on June 1^st for $3,000 cash, provides coverage for 12 months. The insurance coverage since June has been used up.

The unadjusted amount in the Spa Supplies account was $2,000 at December 31, 2017 for supplies purchased on account. A year-end count showed $700 of supplies remain on hand.

The Note Payable from Chapter 3 (i.e. May 30^th) is due June 1, 2018 has estimated Interest Expense thru December 31, 2017 of $1,000, but none has been recorded yet.

On the last day of December, a customer obtained spa services by using a $90 gift certificate that was purchased earlier in the month. Use of the gift certificate to pay for these services had not yet been recorded.

Board of Directors declared a cash dividend in the amount of $1,000 on December 31, 2017 to be paid on January 15, 2018. This dividend has not been recorded.

Required:

For each of the items listed above, identify whether an accrual adjustment, a deferral adjustment, or no adjustment is required.

For each of the deferral adjustments, prepare the initial journal entry that would have been recorded.

Prepare the adjusting journal entries that should be recorded for Nicole’s Getaway Spa at December 31, 2017, assuming that the items have not been adjusted prior to December 31, 2017.

Post the deferral adjustments (i.e. Part 2) and the Adjusting Journal Entries (i.e. Part 3) to the General Ledger (i.e. T-Accounts below).

Prepare an Adjusted Trial Balance (see below).

Now prepare the Income Statement, Statement of Retained Earnings & Balance Sheet in good form.

General Ledger Balances at December 31, 2017 (a.k.a. T-Accounts)

Cash			Accounts Receivable			Prepaid Insurance
Beg.         62,290			Beg.            800			Beg.            3,000
End.			End.			End.

Supplies			Building			Accum. Depreciation – Bldg.
Beg.         2,000			Beg.      47,000				Beg.                   0
End.			End.				End.
Equipment			Accum. Depreciation – Equip.			Land
Beg.       18,500				Beg.                0		Beg.           9,000
End.				End.		End.

Prepaid Rent
Beg.          4,800			Beg.                0			Beg.                   0
End.			End.			End.

Accounts Payable			Unearned Revenue			Notes Payable
	Beg.           1,250			Beg.        1,900			Beg.         12,000
	End.			End.			End.

Interest Payable			Dividend Payable
	Beg.                   0			Beg.                0			Beg.                   0
	End.			End.			End.

Common Stock			Retained Earnings			Dividends
	Beg.         80,000			Beg.               0		Beg.                   0
						End.

Service Revenue			Advertising Expense			Insurance Expense
	Beg.      175,200		Beg.         2,060			Beg.                   0
	End.		End.			End.

Rent Expense			Salary Expense			Utilities Expense
Beg.                0			Beg.   115,200			Beg.           5,700
End.			End.			End.

________ Expense			________ Expense			________ Expense
Beg.                0			Beg.                0			Beg.                   0
End.			End.			End.

Nicole’s Getaway Spa Trial Balance At December 31, 2017
Account Name	Debit	Credit
Cash
Accounts Receivable
Prepaid Insurance
Prepaid Rent
Supplies
Equipment
Accumulated Depreciation – Equipment
Building
Accumulated Depreciation – Building
Land
Accounts Payable
Unearned Revenue
Note Payable
Interest Payable
Dividend Payable
Common Stock
Dividends
Retained Earnings
Service Revenue
Advertising Expense
Insurance Expense
Interest Expense
Rent Expense
Salary & Wages Expense
Supplies Expense
Utilities Expense
Totals

Answer 1

In the books of Nicole's Gateway Spa:

Adjusting Entries:

	Account Titles	Debit	Credit
December 31 2017		$	$
a.	Rent Expense	2,400
	Prepaid Rent		2,400
b.	Depreciation Expense	2,000
	Accumulated Depreciation : Building		2,000
c.	Depreciation Expense	5,000
	Accumulated Depreciation : Equipment		5,000
d.	Salaries and Wages Expense	2,000
	Accounts Payable		2,000
e.	Insurance Expense	1,750
	Prepaid Insurance		1,750
f.	Supplies Expense	1,300
	Supplies		1,300
g.	Interest Expense	1,000
	Interest Payable		1,000
h.	Unearned Revenue	90
	Service Revenue		90
i.	Retained Earnings	1,000
	Dividends Payable		1,000

Nicole's Gateaway Spa

Adjusted Trial Balance

December 31, 2017

	Debit	Credit
	$	$
Cash	62,290
Accounts Receivable	800
Prepaid Insurance	1,250
Prepaid Rent	2,400
Supplies	700
Equipment	18,500
Accumulated Depreciation : Equipment		5,000
Building	47,000
Accumulated Depreciation : Building		2,000
Land	9,000
Accounts Payable		3,250
Unearned Revenue		1,810
Note Payable		12,000
Interest Payable		1,000
Dividend Payable		1,000
Common Stock		80,000
Dividends	1,000
Retained Earnings		0
Service Revenue		175,290
Advertising Expense	2,060
Insurance Expense	1,750
Interest Expense	1,000
Rent Expense	2,400
Salaries and Wages Expense	117,200
Depreciation Expense	7,000
Supplies Expense	1,300
Utilities Expense	5,700
Totals	281,350	281,350