Question

– Problem –

Belanger & Associates, PC, is an engineering firm with offices in several cities in the Carolinas. Belanger’s fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. For bookkeeping purposes, the company has adopted a policy to record payments and collections in advance into asset and liability accounts, respectively. Belanger’s unadjustedtrial balance at December 31, 2018 is shown below. All accounts have normal-side balances.

Accounts Payable                                                                     $  602,715

Accounts Receivable                                                                     923,610

Accumulated Depreciation – Buildings                                           332,105

Accumulated Depreciation – Equipment                                         269,597

Allowance for Doubtful Accounts                                                    11,832

Advertising Expense                                                                        46,739

Buildings                                                                                   1,382,015

Cash                                                                                              582,287

Common Stock ($1 par)                                                                 196,750

Dividends                                                                                     152,500

Equipment                                                                                    793,926

Insurance Expense                                                                          77,205

Interest Expense                                                                              16,931

Land                                                                                             253,760

Notes Payable                                                                               821,000

Prepaid Insurance                                                                         385,104

Property Tax Expense                                                                     41,490

Retained Earnings                                                                      1,037,500

Salaries and Wages Expense                                                      3,938,920

Service Revenue                                                                         5,612,810

Unearned Rent Revenue                                                                  17,388

Utilities Expense                                                                           307,210

Additional information available at year-end is as follows:

Belanger sometimes leases unused space in its buildings to other businesses. On September 1, 2018, a new tenant signed a 3-year lease and paid the first 9 months’ rent of $17,388 in advance. The lease began on that date and runs through August 31, 2021.

The Notes Payable balance relates to a bank loan obtained in 2017 that is payable in full on March 31, 2023. The loan agreement specifies that Belanger pay interest annually on March 31 at the rate of 6.40%. Belanger’s bookkeeper made the proper entry for the first interest payment, on March 31, 2018. (Hint– Think about the entry Belanger made on the first interest payment date.)

On November 20, 2018, Belanger paid $31,640 for internet ads to run evenly over an 8-month period, starting December 1, 2018. Note – Contrary to the company’s normal practice, Belanger’s bookkeeper recorded the prepayment into the Advertising Expense account. Give the adjusting entry needed when a company uses the expense approach to record a payment in advance.

Belanger performed $182,976 of engineering services for several clients in December 2018 that it has not yet billed, recorded or collected.

In the first week of January 2019, Belanger received bills for December 2018 utilities totaling $22,651. The company paid all of these bills in late January 2019.

Belanger estimates that 8.19% of the 2018 year-end accounts receivable balance will notbe collected.

Belanger purchased its buildings in 2007 and its equipment in 2014. Belanger depreciates its fixed assets according to the straight-line method. For the buildings, it uses estimates of 35 years for the useful life and $275,000 for the salvage value. For the equipment, it uses estimates of 9 years for the useful life and $47,349 for the salvage value.

On June 1, 2018, Belanger purchased a 2-year insurance policy for $385,104 and paid the full cost of the policy in advance. The policy provides coverage through May 31, 2020.

Belanger operates 5 days a week, Mondays through Fridays. Employees are paid each Friday, for hours worked through the previous Friday. On Friday, December 28, 2018, the last pay day in 2018, Belanger paid its employees for hours worked during the week of December 17-21. The employees then worked their regular schedule through the end of the year. Note that Tuesday, December 25 was a paid holiday for all employees. Belanger’s payroll averages $15,720 per day.

The company’s income tax rate for the year is 30%. (Hint– The income tax rate is applied to the company’s income after all revenues and expenses have been considered except for the income tax charge.)

– Instructions –

Complete the following four tasks relating to Belanger & Associates, PC’s accounting process at year-end 2018:

(a)        Prepare the adjusting journal entries needed at December 31, 2018.

(b)       Prepare an adjustedtrial balance as of December 31, 2018. List the accounts in an appropriate trial balance order.

(c)        Prepare the closing journal entries needed at December 31, 2018. Belanger uses an Income Summary account.

(d)       Prepare a post-closingtrial balance as of December 31, 2018. List the accounts in an appropriate trial balance order.

Answer 1

Requirement 1:

Date	Account Title and Explanation	Debit	Credit
Dec 31	Unearned Rent Revenue ($17,388 × 4 ÷ 9)	$7,728
	Rent Revenue		$7,728
	To record rent revenue earned
	Interest expense (($821,000 × 6.4%) × 9 ÷ 12)	$39,408
	Interest payable		$39,408
	To record interest payable
	Prepaid Advertising ($31,640 × 7 ÷ 8)	$27,685
	Advertising Expense		$27,685
	To record Prepaid Advertising
	Accounts receivable	$182,976
	Service revenue		$182,976
	To record service revenue earned
	Utilities Expense	$22,651
	Utilities payable		$22,651
	To record utilities payable
	Bad Debt Expense (($923,610 × 8.19%) − $11,832)	$63,812
	Allowance for Doubtful Accounts		$63,812
	To record allowance for doubtful accounts
	Depreciation expense (($1,382,015 − $275,000) ÷ 35 )	$31,629
	Accumulated Depreciation – Buildings		$31,629
	To record depreciation expense on buildings
	Depreciation expense (($793,926 − $47,349) ÷ 9 )	$82,953
	Accumulated Depreciation – Equipment		$82,953
	To record depreciation expense on equipment
	Insurance expense ($385,104 × 7 ÷ 24)	$112,322
	Prepaid insurance		$112,322
	To record insurance expense
	Salaries and Wages Expense $15,720 × 6)	$94,320
	Salaries and Wages payable		$94,320
	To record salaries and wages payable
	Income tax Expense ($5,803,514 − $4,847,905 ) × 30%	$286,683
	Income tax payable		$286,683
	To record income tax payable

Requirement 2:

Account Title	Amount	Amount
Cash	$582,287
Accounts Receivable	$1,106,586
Allowance for Doubtful Accounts		$75,644
Prepaid Insurance	$272,782
Prepaid Advertising	$27,685
Land	$253,760
Buildings	$1,382,015
Accumulated Depreciation – Buildings		$363,734
Equipment	$793,926
Accumulated Depreciation – Equipment		$352,550
Accounts Payable		$602,715
Salaries and Wages payable		$94,320
Utilities payable		$22,651
Interest payable		$39,408
Unearned Rent Revenue		$9,660
Income tax payable		$286,683
Notes Payable		$821,000
Common Stock ($1 par)		$196,750
Retained Earnings		$1,037,500
Service Revenue		$5,795,786
Rent Revenue		$7,728
Salaries and Wages Expense	$4,033,240
Utilities Expense	$329,861
Insurance Expense	$189,527
Interest Expense	$56,339
Property Tax Expense	$41,490
Advertising Expense	$19,054
Bad debt expense	$63,812
Depreciation expense - Buildings	$31,629
Depreciation expense - Equipment	$82,953
Income tax expense	$286,683
Dividends	$152,500
Total	$9,706,129	$9,706,129

Requirement 3:

	Service Revenue	$5,795,786
	Rent Revenue	$7,728
	Income summary		$5,803,514
	To close revenue accounts
	Income summary	$5,134,588
	Salaries and Wages Expense		$4,033,240
	Utilities Expense		$329,861
	Insurance Expense		$189,527
	Interest Expense		$56,339
	Property Tax Expense		$41,490
	Advertising Expense		$19,054
	Bad debt expense		$63,812
	Depreciation expense - Buildings		$31,629
	Depreciation expense - Equipment		$82,953
	Income tax expense		$286,683
	To close expense accounts
	Income summary	$668,926
	Retained earnings		$668,926
	To close income summary account
	Retained earnings	$152,500
	Dividends		$152,500
	To close dividends

Requirement 4:

Account Title	Amount	Amount
Cash	$582,287
Accounts Receivable	$1,106,586
Allowance for Doubtful Accounts		$75,644
Prepaid Insurance	$272,782
Prepaid Advertising	$27,685
Land	$253,760
Buildings	$1,382,015
Accumulated Depreciation – Buildings		$363,734
Equipment	$793,926
Accumulated Depreciation – Equipment		$352,550
Accounts Payable		$602,715
Salaries and Wages payable		$94,320
Utilities payable		$22,651
Interest payable		$39,408
Unearned Rent Revenue		$9,660
Income tax payable		$286,683
Notes Payable		$821,000
Common Stock ($1 par)		$196,750
Retained Earnings		$1,553,926
Total	$4,419,041	$4,419,041