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1 Joseph Jewelers purchased display shelves on March 1 for $36,000. If this asse

ID: 2407345 • Letter: 1

Question

1 Joseph Jewelers purchased display shelves on March 1 for $36,000. If this asset has an estimated useful life of five years, what is the book value of the display shelves on April 302 a $600. b $34,800. ? $33,600. d $900. 2 The adjusting entry to recognize an unrecorded expense is necessary: When an expense is paid in advance. a b When an expense has been neither paid nor recorded as of the end of the accounting period. Whenever an expense remains unpaid at the end of an accounting period. d c Because the accountant is likely to forget to pay these unrecorded expenses. 3 Before any month-end adjustments are made, the profit of Lawrence Company is $550,000. However, the following adjustments are necessary: office supplies used, $35,000; services performed for clients but not yet recorded or collected, S12,300; interest accrued on note payable to bank, $14,100. After adjusting entries are made for the items listed above, Lawrence Company's profit would be: a $541,400. b $488,600. c $583,200. d $513,200.

Explanation / Answer

Answer to Question 1.

Option b i.e. $34,800

Depreciation per year = (Cost – Salvage Value) / Useful Life
Depreciation per year = (36,000 – 0) / 5
Depreciation per year = $7,200

Depreciation for 2 months i.e. till April 30 = $7,200 * 2/12
Depreciation for 2 months i.e. till April 30 = $1,200

Book Value on April 30 = Cost - Depreciation for 2 months i.e. till April 30
Book Value on April 30 = $36,000 - $1,200
Book Value on April 30 = $34,800

Answer to Question 2.

Option b

The adjusting entry of unrecorded expense is necessary to record the expenses accrued during the year, whether they are paid or not.

Answer to Question 3.

Option d i.e. $513,200

Office Supplies used will reduce Profit
Service performed will increase Profit
Interest Accrued will decrease profit

After adjustment profit = Before Adjustment profit – Effect of Adjustment on Profit
After adjustment profit = $550,000 - $35,000 + $12,300 - $14,100
After adjustment profit = $513,200