Question

Clapton Guitar Company entered into the following transactions during 2016. [The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.]

Date	Transaction
Jan. 25	Purchased $480 of office supplies.
Feb. 1	Rented a warehouse from Hendrix Company, paying 1 year’s rent of $3,600 in advance. Recorded the $3,600 payment as rent expense.
Mar. 1	Borrowed $10,000 from the bank, signing a 1-year note at an annual interest rate of 12%. The bank insisted on collecting the interest in advance, so it withheld the interest amount from the funds disbursed to Clapton. The company recorded the transaction as a debit to Cash, $8,800, a debit to Interest Expense, $1,200, and a credit to Notes Payable, $10,000.
May 1	Purchased office equipment for $15,000, paying $3,000 down and signing a 2-year, 12% (annual rate) note payable for the balance. The office equipment is expected to have a useful life of 10 years and a residual value of $1,500. Straight-line depreciation is appropriate.
May 31	Purchased a 3-year comprehensive insurance policy for $720.
Aug. 1	Sold land for $9,000. The purchaser made a $2,000 down payment and signed a 1-year, 10% note for the balance. The interest and principal will be collected on the maturity date.
Oct. 1	Rented a portion of the retail floor space to Harrison Inc. for $120 per month, collecting 8 months’ rent in advance. Recorded the $960 receipt as rent revenue.
Nov. 13	Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year. Required On the basis of the preceding information, prepare journal entries to adjust Clapton’s books as of December 31, 2016.

Answer 1

Note: All journal entries is to be passed as on December 31,2016 but different dates has been provided just make to reference to those entries for understanding purpose.

In the Books of Clapton Guitar Company		Amount in “$”
Date	Particulars	Debit	Credit
Jan.25	Office supplies expenses	480
	Office supplies		480
	(Being assumed that all office supplies consumed at the year end)
Feb.01	Prepaid Rent	300
	Rent expense		300
	(Being rent of 1 month is still prepaid (3600/12 *1)
March.01	Cash	200
	Interest Expense		200
	(Being Interest for 10 months is 10000*12%*10/12 = 1000 but recorded 1200 wrongly now rectified)
May.01	Interest expense	960
	Notes Payable		960
	(Being interest charged for 8 months @ 12% = 12000*12%*8/12 = 960)
May.01	Depreciation Expense	900
	Accumulated depreciation – office Equipment		900
	(Being depreciation Charged on office equipment by using SLM method. Amount of depreciation = (15000-1500)/10 *8/12 =1350*8/12 = 900
May.31	Insurance Expense	140
	Prepaid Insurance		140
	(Being prepaid insurance adjusted with insurance expense for 7 months= 720/36 *7 = 140)
Aug.01	Note Receivable	291.67
	Interest income		291.67
	(Being interest income accrued for 5 months @ 10% on 7000 = 7000*10%*5/12 = 291.67)
Oct.01	Rent revenue	600
	Advance rent		600
	(Being rent revenue of 3 months adjusted with advance rent = 960 - 960/8 * 3 = 600)
Nov.13	Travelling Expense	900
	Prepaid travelling expense		900
	(Being prepaid Travelling expense adjusted)