Busi 3325 Assignment Two Question One The trial balance of Santos Corporation is

Question

Busi 3325 Assignment Two Question One The trial balance of Santos Corporation is below. The following information is relevant to the preparation of adjusting entries needed to both properly match revenues and expenses for the period and reflect the proper balances in the accounts Instructions As the accountant for Santos, you are to prepare adjusting entries based on the following data, Carefully key your adjustments and label all items. (Due to time constraints, an adjusted trial balance is not required.) Round all calculations to the nearest dollar 1. On November 1, 2017, the company received $10,200 rent from its lease for a 12-month lease beginning on that date. This was credited to rent revenue. 2. The company estimates that 7% of its accou nts receivable on December 31, 2017, will be uncollectable. On December 28, 2017, the bookkeeper incorrectly credited sales revenue for a receipt of $1,000 on account. This error has not been corrected on December 31. 3. After a physical count inventory on hand at December 31, 2017, was $77,000 4. Prepaid insurance contains the premium costs of two policies: Policy A cost $1,320, two- year term, taken out on April 1, 2017; Policy B cost $1,620,three-year term, taken out on September 1, 2017 The regular rate of depreciation is 10% of cost per year. Acquisitions and retirements during a year are depreciated at half this rate. On December 31, 2016 the balance in the equipment account was $90,000 On April 1, 2017, the company issued at par value 50 $1,000, 11% bonds maturing April 1, 2020. Interest is paid on April 1 and October1 5. There were no retirements during the year. 6. 7 on August 1, 2017, the company purchased atpar value 18 $1,000 12%bonds, maturing 8. On May 30, 2017, the company rented a warehouse for $1,100 per month and debited 9. The company's FV-NI investment consists of shares with total market value of $9,400 as at 10. The FV-OCI investment is an investment of 500 shares, with current market value of $25 July 31, 2019. Interest is paid on July 31 and January 31. prepaid rent for an advance payment of $13,200. December 31, 2017 per share as at December 31, 2017 Santos Corporation Trial Balance Year ended December 31, 2017 DR CR 10,850 Cash Accounts Receivable56,500 Allow. for D. A FV-NI Investments Inventory Prepaid insurance Prepaid rent FV-OCI investments14,000 Bond investment at amort-ized cost 18,000 750 8,600 58,000 2,940 13,200

Explanation / Answer

Notes 1

Account receivable balance as per question

56500

Less: incorrectly recorded

1000

Corrected account receivable

55500

Less: balance of allowance of doubtful debt (55500*7%)

3885

Net balance of account receivable

51615

Adjustment for bad debts expense

Ending balance of allowance of doubtful debt

3885

Less: beginning balance of allowance of doubtful debt

750

Adjustment for bad debts expense

3135

Notes 2

Equipment at ending

104000

Equipment at beginning of year

-90000

Addition during year

14000

Deprecation

On beginning balance (90000*10%)

9000

On addition during the year (14000*10%*1/2)

700

Depreciation

9700

Santos Corporation

Adjustment entries

Transaction

Account title & explanation

Debit

Credit

1

Rent revenue (10200*10/12)

8500

Unearned rent revenue

8500

(To record unearned rent revenue for 10 months.)

2

Sales revenue

1000

Account receivable

1000

(To record reversal of entry for incorrectly credited to sales revenue.)

2

Bed debts expense (Notes 1)

3135

Allowance of doubtful debt

3135

(To record Bed debts expense.)

3

Inventory (ending)

77000

Cost of goods sold (170000+58000-77000)

151000

Inventory (beginning)

58000

Purchase

170000

(To record cost of goods sold.)

4A

Insurance expense (2 years*12 = 24 months) (1320*9/24)

495

Prepaid insurance

495

(To record insurance expenses for expiry of months.)

AB

Insurance expense (3 years*12 = 36 months) (1620*4/36)

180

Prepaid insurance

180

(To record insurance expenses for expiry of months.)

5

Depreciation expense (Notes 2)

9700

Accumulated Depreciation

9700

(To record depreciation expense.)

6

Interest expense (50000*11%*3/12)

1375

Interest payable

1375

(To record accrued interest on bond for 3 Month) (Oct to Dec)

7

Interest receivable (18000*12%*5/12)

900

Interest revenue

900

(To record accrued interest revenue for 5 month on investment in bonds .) (July to Dec)

8

Rent expense (1100*7)

7700

Prepaid rent

7700

(To record rent expense for 7 month.) (June to Dec)

9

FV-NI investment

800

Increase In fair value of FV-NI investment (considered in net income)

800

(To record adjustment for FV-NI investment at fair value) (9400-8600)

10

Decrease In fair value of FV-OCI investment (Not considered for net income.)

1500

FV-OCI investment

1500

(To record adjustment for FV-OCI investment at fair value) (500*25=12500) (12500-14000= -1500) (1500 decrease in value)

Answer 2

Entry for incorrect sales revenue should be reversed. (Transaction 2)

Notes 1

Account receivable balance as per question

56500

Less: incorrectly recorded

1000

Corrected account receivable

55500

Less: balance of allowance of doubtful debt (55500*7%)

3885

Net balance of account receivable

51615

Adjustment for bad debts expense

Ending balance of allowance of doubtful debt

3885

Less: beginning balance of allowance of doubtful debt

750

Adjustment for bad debts expense

3135

Notes 2

Equipment at ending

104000

Equipment at beginning of year

-90000

Addition during year

14000

Deprecation

On beginning balance (90000*10%)

9000

On addition during the year (14000*10%*1/2)

700

Depreciation

9700

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