6. Pastina Company sells various types of pasta to grocery chains as private lab

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.

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.

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

Explanation / Answer

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.

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