Clapton Guitar Company entered into the following transactions during 2016. [The
ID: 2332409 • Letter: C
Question
Clapton Guitar Company entered into the following transactions during 2016. [The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.]
Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year.
Required
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. 13Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year.
Required
On the basis of the preceding information, prepare journal entries to adjust Clapton’s books as of December 31, 2016.Explanation / Answer
Note: All journal entries is to be passed as on December 31,2016 but different dates has been provided just make to reference to those entries for understanding purpose.
In the Books of Clapton Guitar Company
Amount in “$”
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)
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)
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