The following list of accounts and their balances represents the unadjusted tria
ID: 2414913 • Letter: T
Question
The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2014:
Cash $ 27,290
Short-term Investment 60,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Inventory 54,720
Prepaid Rent 36,000
Plant Assets 160,000
Accumulated Depreciation 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales Revenue 214,800
Cost of Goods Sold 154,400
Transportation-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 21,600
Miscellaneous Expense 890
Insurance Expense 12,850
Additional Data:
1. The balance in the Insurance Expense account contains the premium costs of three policies:
Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2013;
Policy 2, original cost of $9,600, 3-yr. term, taken out on Oct. 1, 2014;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2014.
2. On September 30, 2014, Alt received $21,600 rent from its lessee for an eighteen month lease beginning on that date.
3. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no purchases during the year. On December 31, 2013, the balance of the Plant and Equipment account was $220,000.
4. On December 28, 2014, the bookkeeper incorrectly credited sales for a receipt on account in the amount of $4,200.
5. At December 31, 2004, salaries accrued but unpaid were $4,200.
6. Alt estimates that 1% of sales will become uncollectible.
7. On August 1, 2014, Alt purchased, as a short-term investment, 60 $1,000, 6% bonds of Allen Corp. at par. The bonds mature on August 1, 2015. Interest payment dates are July 31 and January 31.
8. On April 30, 2014, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance.
Instructions
Record the necessary correcting and adjusting entries.
Indicate which of the adjusting entries may be reversed at the beginning of the next accounting period.
The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2014:
Cash $ 27,290
Short-term Investment 60,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Inventory 54,720
Prepaid Rent 36,000
Plant Assets 160,000
Accumulated Depreciation 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales Revenue 214,800
Cost of Goods Sold 154,400
Transportation-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 21,600
Miscellaneous Expense 890
Insurance Expense 12,850
Additional Data:
1. The balance in the Insurance Expense account contains the premium costs of three policies:
Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2013;
Policy 2, original cost of $9,600, 3-yr. term, taken out on Oct. 1, 2014;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2014.
2. On September 30, 2014, Alt received $21,600 rent from its lessee for an eighteen month lease beginning on that date.
3. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no purchases during the year. On December 31, 2013, the balance of the Plant and Equipment account was $220,000.
4. On December 28, 2014, the bookkeeper incorrectly credited sales for a receipt on account in the amount of $4,200.
5. At December 31, 2004, salaries accrued but unpaid were $4,200.
6. Alt estimates that 1% of sales will become uncollectible.
7. On August 1, 2014, Alt purchased, as a short-term investment, 60 $1,000, 6% bonds of Allen Corp. at par. The bonds mature on August 1, 2015. Interest payment dates are July 31 and January 31.
8. On April 30, 2014, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance.
Instructions
Record the necessary correcting and adjusting entries.
Indicate which of the adjusting entries may be reversed at the beginning of the next accounting period.
Explanation / Answer
Adjusting entries 1) Prepaid Insurance Dr 8800 Insurance Expense Cr 8800 ( To record insurance prepaid) Refer working 1 2) Rent Revenue Dr 18000 Rent received in advance Cr 18000 ( To record rent revenue for the year 2014) ( Refer working 2) 3) Depriciation Dr 19000 Accumulated Depriciation Cr 19000 ( To record depriciation for the year) (Refer working 3) 4) Sales Dr 4200 Accounts receivable Cr 4200 ( to record rectification of error) 5) Salaries and Wages Expense Dr 4200 Salaries and Wages Payable Cr 4200 ( To record salaries unpaid) 6) Allowance for Doubtful accounts ( P&L) Dr 2148 Allowance for Doubtful accounts ( BS) Cr 2148 ( To record allwance @ 1% of 214800) 7) Interest Accrued not due Dr 1500 Interest Income Cr 1500 ( To accrue interest for 5 months ie 60000*6%/12*5) 8) Rent Expense Dr 24000 Prepaid Rent Cr 24000 ( To record rent expense for 8 months 36000/12*8) Working Notes 1) Insurance expense Policy 1 The cost of 2550 is the cost for 2014 hence no entry required Policy 2 Original cost 9600 cost current year (Oct - Dec) = 9600/3/12*3 '=800 Hence prepaid insurance = 9600 - 800 = 8800 Policy 3 Original cost 1300 from January 1 to December 31 entire cost is for the current year 2) Rent Received 21600 for 18 months Rent revenue for 3 months ( October - December ) = 21600/18* 3 = 3600 Rent received in advance ( 21600-3600) = 18000 3) Depriciation Plant sold during the year ( 220000 - 160000)= 60000 Depriciation @ 5% for assets sold 3000 Depriciation @ 10% on balance assets 160000 = 16000 Total Depriciation for the year 19000 The following 2 entries can be reversed in the beginning of the next accounting period 1) Prepaid Insurance Dr Insurance Expense Cr 2) Rent Revenue Dr Rent received in advance Cr
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