Question

6.

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below.

Account Title	Debits			Credits
Cash		20,000
Accounts receivable		30,000
Supplies		1,400
Inventory		50,000
Note receivable		10,000
Interest receivable		0
Prepaid rent		2,400
Prepaid insurance		0
Office equipment		96,000
Accumulated depreciation—office equipment					36,000
Accounts payable					21,000
Salaries and wages payable					0
Note payable					40,000
Interest payable					0
Deferred revenue					0
Common stock					50,000
Retained earnings					23,700
Sales revenue					138,000
Interest revenue					0
Cost of goods sold		60,000
Salaries and wages expense		17,900
Rent expense		13,200
Depreciation expense		0
Interest expense		0
Supplies expense		1,000
Insurance expense		4,800
Advertising expense		2,000
Totals		308,700			308,700

Information necessary to prepare the year-end adjusting entries appears below.

Depreciation on the office equipment for the year is $12,000.

Employee salaries and wages are paid twice a month, on the 22nd for salaries and wages earned from the 1st through the 15th, and on the 7th of the following month for salaries and wages earned from the 16th through the end of the month. Salaries and wages earned from December 16 through December 31, 2018, were $1,400.

On October 1, 2018, Pastina borrowed $40,000 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.

On March 1, 2018, the company lent a supplier $10,000 and a note was signed requiring principal and interest at 9% to be paid on February 28, 2019.

On April 1, 2018, the company paid an insurance company $4,800 for a two-year fire insurance policy. The entire $4,800 was debited to insurance expense.

$900 of supplies remained on hand at December 31, 2018.

A customer paid Pastina $1,000 in December for 1,200 pounds of spaghetti to be delivered in January 2019. Pastina credited sales revenue.

On December 1, 2018, $2,400 rent was paid to the owner of the building. The payment represented rent for December 2018 and January 2019, at $1,200 per month.

Required:
Prepare the necessary December 31, 2018, adjusting journal entries.

Answer 1

The following adjusting entries will be prepared to record the given transactions and events:

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Depreciation expense	12000
	Accumulated depreciation—office equipment		12000
	To record depreciation on office equipment.
Dec. 31	Salaries and wages expense	1400
	Salaries and wages payable		1400
	To record accrued salaries and wages expense.
Dec. 31	Interest expense ($40,000 x 12% x 3/12)	1200
	Interest payable		1200
	To record accrued interest expense.
Dec. 31	Interest receivable ($10,000 x 9% x 10/12)	750
	Interest revenue		750
	To record accrued interest revenue.
Dec. 31	Prepaid insurance ($4,800 x 15/24)	3000
	Insurance expense		3000
	To record prepaid insurance.
Dec. 31	Supplies expense ($1,400 - $900)	500
	Supplies		500
	To record supplies expense.
Dec. 31	Sales revenue	1000
	Unearned revenue		1000
	To record unearned revenue.
Dec. 31	Rent expense	1200
	Prepaid rent	1200
	Cash		2400
	To record rent expense and prepaid rent.