Lori Matlock operates a graphic arts business. A trial balance on June 30, 2016,

Question

Lori Matlock operates a graphic arts business. A trial balance on June 30, 2016, before recording any adjusting entries, appears as follows: Lori Matlock UNADJUSTED TRIAL BALANCE June 30, 2016 ACCOUNT TITLE DEBIT CREDIT 1 Cash 7,000.00 2 Prepaid Rent 18,000.00 3 Supplies 15,210.00 4 Office Equipment 46,120.00 5 Accumulated Depreciation-Equipment 4,000.00 6 Accounts Payable 1,800.00 7 Notes Payable 2,000.00 8 Capital Stock 50,000.00 9 Retained Earnings 24,350.00 10 Dividends 8,400.00 11 Revenue 46,850.00 12 Utilities Expense 2,850.00 13 Salaries Expense 19,420.00 14 Advertising Expense 12,000.00 15 Totals 129,000.00 129,000.00 Other Data a. The monthly rent is $600. b. Supplies on hand on June 30, 2016, amount to $1,290. c. The office equipment was purchased on June 1, 2015. On that date, it had an estimated useful life of ten years and a salvage value of $6,120. d. Interest owed on the note payable but not yet paid amounts to $50. e. Salaries of $620 are owed but unpaid to employees at the end of the month.

Required: 1. Prepare in general journal form the necessary adjusting entries at June 30, 2016. 2. Note that the unadjusted trial balance reports a credit balance in Accumulated Depreciation—Equipment of $4,000. Explain why the account contains a balance of $4,000 on June 30, 2016.

Explanation / Answer

1.

Journal Entries

Rent A/c           Dr 7200

        To Prepaid Rent A/c       7200

(Being rent expense recorded)

Rent = $600 per month * 12months = 7,200

Office Supplies Expenses A/c       Dr 13,920

         To Supplies A/c                              13,920

(Being supplies consumed recorded.)

Supplies Consumed = 15,210 – 1,290 = 13,920

Depreciation A/c                  Dr.       333

         To Accumulated Depreciation-Equipment     333

(Being Depreciation charged for one month)

Note: Balance in Accumulated Depreciation-Equipment is 4,000 and it was purchased on 1 June 2015. Thus, 1 year’s depreciation has already been charged, i.e till 31st May 2016. Therefore, as on June 30, 1 month’s depreciation is to be charged.

Interest Expense A/c                         Dr. 50

      To Unpaid Interest on Notes Payable       50

(Being unpaid interest recorded.)

Salaries Expense A/c                        Dr 620

          To salaries outstanding                     620    

(Being Salaries outstanding recorded.)

2.

Unadjusted trial balance reports a credit balance in Accumulated Depreciation—Equipment of $4,000 because the depreciation on equipment for 1 year. i.e till 31st May has been recorded in the books as Depreciation Expense.

1Year depreciation = (46,120 – 6,120) / 10 = 4,000

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