Problem_4

# Problem_4 - Problem 4.2 Adjusting entries and effect on...

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Problem 4.2 Adjusting entries and effect on financial statements SMART DRY CLEANING SERVICES A. 1. Interest Expense 110 Interest Payable 110 To record accrued interest on bank loan 2. Rent Expense 625 Rent Payable 625 To record rent due on office premises [5/6 of \$750] 3. Depreciation Expense 6 200 Accumulated Depreciation 6 200 To record depreciation on equipment 4. Insurance Expense 291 Prepaid Insurance 291 To record insurance expired (\$228 x 9/12) + [\$540/3 x 8/12] 5. Wages Expense 240 Wages Payable 240 To record wages owing to employees 6. Unearned Dry Cleaning Revenue 300 Dry Cleaning Revenue 300 To record dry cleaning revenue earned (\$450 x 2/3) 7. Electricity Expense 3 000 Electricity Account Payable 3 000 To record electricity due and payable 8. Supplies Expense 560 Supplies 560 To record supplies used [\$135 + 545 – 120 = \$560] B.1. Balance in Dollar Balance 1

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Entry Account the account before adjustmen t effect of adjustin g entries reported in 30/6 balance sheet Balance sheet classification * 1. Interest Payable - +\$110 \$110 Current liability 2. Rent Payable - +625 625 Current liability 3. Accumulated Depreciation 18 600 +6 200 24 800 Contra asset to the equipment account 4. Prepaid Insurance 711 -291 420 Current asset 5. Wages Payable - +240 240 Current liability 6. Unearned Dry Cleaning Revenue 450 -300 150 Current liability 7. Electricity Account Payable - +3 000 3 000 Current liability 8. Supplies 680 -560 120 Current asset B.2. Decrease in profit, \$10 726 -\$110 - \$625 - \$6 200 - \$291 - \$240 + \$300 - \$3 000 - \$560 = \$10 726 B.3. (a) Decrease in total assets, \$7 051 -\$6 200 - \$291 - \$560 = \$7 051 (b) Increase in total liabilities, \$3 675 +\$110 + \$625 + \$240 - \$300 + \$3 000 = \$3 675 (c) Decrease in equity, \$10 726 Problem 4.3 Adjusting entries for prepaid insurance, unearned revenue and prepaid rent and ledger accounts LOCAL PUBLISHING LTD Subscriptions Revenue 30/6/08 Unearned Revenue \$24 986 Unearned Subscriptions Revenue 30/6/08 Subscriptions Revenue \$24 986 1/7/07 Balance b/d \$20 140 30/6/08 Balance c/d 11 129 1/10/07 Cash at Bank 3 525 1/2/08 Cash at Bank 8 270 1/5/08 Cash at Bank 4 180 \$36 115 \$36 115 1/7/08 Balance b/d \$11 129 Prepaid Insurance 1/7/07 Balance b/d \$2 850 30/6/08 Insurance Expense \$7 419
Cash at Bank 6 450 30/6/08 Balance c/d 1 881 \$9 300 \$9 300 1/7/08 Balance b/d \$1 881 Insurance Expense 30/6/08 Prepaid Insurance \$7 419 Prepaid Rent 1/7/07 Balance b/d \$3 094 30/6/08 Rent Expense \$7 546 1/12/07 Cash at Bank 5 724 30/6/08 Balance c/d 1 272 \$8 818 \$8 818 1/7/08 Balance b/d \$1 272 Rent Expense 30/6/04 \$7 546 Adjusting entries 2008 Jun 30 Insurance Expense 7 419 Prepaid Insurance 7 419 To record expired insurance \$2 850 + (8.5/12 x \$6 450)]= \$7 419 Unearned Subscriptions Revenue 24 986 Subscriptions Revenue 24 986 To record subscriptions revenue earned \$5 220 + \$13 125 + \$3 525 + (5/24 x \$8 270) + (2/6 x \$4 180) = \$24 986 Rent Expense 7 546 Prepaid Rent 7 546 To record rent expired \$3 094 + (7/9 x \$5 724) = \$7 546 Problem 4.4

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Problem_4 - Problem 4.2 Adjusting entries and effect on...

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