Problem 3-9 (Part Level Submission) (a) No. Account Titles and Explanation Debit
ID: 2334076 • Letter: P
Question
Problem 3-9 (Part Level Submission)
(a)
No.
Account Titles and Explanation
Debit
Credit
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Problem 3-9 (Part Level Submission)
The unadjusted trial balance of Larkspur, Inc. at December 31, 2017, is as follows:Debit Credit Cash $17,940 Accounts Receivable 103,700 Allowance for Doubtful Accounts $3,300 Inventory 59,800 Prepaid Insurance 4,517 Bond Investment at Amortized Cost 42,000 Land 30,600 Buildings 156,600 Accumulated Depreciation—Buildings 8,453 Equipment 32,400 Accumulated Depreciation—Equipment 5,400 Goodwill 16,700 Accounts Payable 100,000 Bonds Payable (20-year, 7%) 180,000 Common Shares 117,300 Retained Earnings 39,384 Sales Revenue 195,500 Rent Revenue 10,200 Advertising Expense 19,800 Supplies Expense 10,200 Purchases 98,300 Purchase Discounts 770 Salaries and wages expense 54,800 Interest Expense 12,950 $660,307 $660,307
Additional information:
1. Actual advertising costs amounted to $1,320 per month. The company has already paid for advertisements in Montezuma Magazine for the first quarter of 2018. 2. The building was purchased and occupied on January 1, 2015, with an estimated useful life of 15 years, and residual value of $29,800. (The company uses straight-line depreciation.) 3. Prepaid insurance contains the premium costs of several policies, including Policy A, cost of $2,601, one-year term, taken out on April 1, 2017; and Policy B, cost of $1,916, three-year term, taken out on September 1, 2017. 4. A portion of Larkspur’s building has been converted into a snack bar that has been rented to the Pronghorn Corp. since July 1, 2016, at a rate of $6,800 per year payable each July 1. 5. One of the company’s customers declared bankruptcy on December 30, 2017. It is now certain that the $2,710 the customer owes will never be collected. This fact has not been recorded. In addition, Larkspur estimates that 4% of the Accounts Receivable balance on December 31, 2017, will become uncollectible. 6. An advance of $550 to a salesperson on December 31, 2017, was charged to Salaries and Wages Expense. 7. On November 1, 2015, Larkspur issued 180 $1,000 bonds at par value. Interest is paid semi-annually on April 30 and October 31. 8. The equipment was purchased on January 1, 2015, with an estimated useful life of 14 years, and no residual value. (The company uses straight-line depreciation.) 9. On August 1, 2017, Larkspur purchased at par value 42 $1,000, 8% bonds maturing on July 31, 2019. Interest is paid on July 31 and January 31. 10. The inventory on hand at December 31, 2017, was $88,100 after a physical inventory count. (Use "Inventory" account for closing out the beginning inventory amount and recording the ending inventory amount.)
Explanation / Answer
Adjusting Journal entries Working No. Account Titles Debit Credit Depreciation per year using straight line method = (Cost - residual value) / useful life 1 Prepaid Advertisng Expense $3,960.00 Depreciation on Building per year using straight line method = ($156600 - $29800) / 15 years = $8453 Advertising Expense $3,960.00 (to record prepaid expense) Insurance Expense out of Policy A = ($2601/12 Months) * 9 months = $1951 Insurance Expense out of Policy B = ($1916/36 Months) * 4 months = $213 2 Depreciation Expense $8,453.00 Accumulated Depreciation—Buildings $8,453.00 Bad debt expense = 4% of ($103700 - $2710) = $4040 (to record depreciation expense for the year) Interest expense accrued on bonds payable = [$180000*7%/12 months] * 2 months = $2100 3 Insurance Expense $2,164.00 Prepaid Insurance $2,164.00 Depreciation on Equipment per year using straight line method = ($32400 - $0) / 14 years = $2314 (to record insurance expense out of prepaid exp.) Accrued Interest Income = [$42000 * 8%/12 months] * 5 months = $1400 4 No entry 5 Allowance for Doubtful accounts $2,710.00 Cost of goods sold Accounts Receivables $2,710.00 Beginning Inventory $59,800.00 (to write off uncollectible receivables) Add : Purchases (net of discount) $97,530.00 Less : Ending Inventory $88,100.00 Bad debt expense $4,040.00 Cost of goods sold $69,230.00 Allowance for Doubtful accounts $4,040.00 (to record bad debt expense) 6 Advance to Sales person $550.00 Salaries and Wages expense $550.00 (to record advance to sales person) 7 Interest Expense $2,100.00 Interest Payable $2,100.00 (to record interest expense on bonds payable for 2 months) 8 Depreciation Expense $2,314.00 Accumulated Depreciation—Equipment $2,314.00 (to record depreciation expense for the year) 9 Accrued Interest Income $1,400.00 Interest Income $1,400.00 (to record accrued interest income on bonds for 5 months) 10 Cost of Goods sold $69,230.00 Inventory $69,230.00 (to record cost of goods sold)
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