Chapter 4 – Continuing Case CC4-1 Modified Adjusting the Accounting Records and
ID: 2532314 • Letter: C
Question
Chapter 4 – Continuing Case CC4-1 Modified
Adjusting the Accounting Records and then Some
Assume it is now December 31, 2017 and Nicole has just completed her first year of operations at Nicole’s Getaway Spa. After looking through her trial balance, she noticed that there are some items that have either not been recorded or are no longer up-to-date.
Nicole’s Getaway Spa is renting its space at a cost of $600 per month. On September 1, 2017, Nicole paid eight months’ rent in advance using cash. This prepayment was recorded in the account Prepaid Rent back in September.
The building, purchased at the beginning of the year for $47,000 cash, has estimated depreciation of $2,000 for 2017, but none has been recorded yet.
The Equipment purchased in Chapter 3 (i.e. May 30th) for $18,500, has estimated depreciation of $5,000 for 2017, but none has been recorded yet.
Salaries and wages to the support staff at Nicole’s Getaway Spa have been paid up to December 26, 2017. The support staff worked both December 27th and 28th and will be paid on January 5, 2018. Salaries and wages amount to $1,000 per day. The spa was closed December 29-31st.
The insurance policy, purchased on June 1st for $3,000 cash, provides coverage for 12 months. The insurance coverage since June has been used up.
The unadjusted amount in the Spa Supplies account was $2,000 at December 31, 2017 for supplies purchased on account. A year-end count showed $700 of supplies remain on hand.
The Note Payable from Chapter 3 (i.e. May 30th) is due June 1, 2018 has estimated Interest Expense thru December 31, 2017 of $1,000, but none has been recorded yet.
On the last day of December, a customer obtained spa services by using a $90 gift certificate that was purchased earlier in the month. Use of the gift certificate to pay for these services had not yet been recorded.
Board of Directors declared a cash dividend in the amount of $1,000 on December 31, 2017 to be paid on January 15, 2018. This dividend has not been recorded.
Required:
For each of the items listed above, identify whether an accrual adjustment, a deferral adjustment, or no adjustment is required.
For each of the deferral adjustments, prepare the initial journal entry that would have been recorded.
Prepare the adjusting journal entries that should be recorded for Nicole’s Getaway Spa at December 31, 2017, assuming that the items have not been adjusted prior to December 31, 2017.
Post the deferral adjustments (i.e. Part 2) and the Adjusting Journal Entries (i.e. Part 3) to the General Ledger (i.e. T-Accounts below).
Prepare an Adjusted Trial Balance (see below).
Now prepare the Income Statement, Statement of Retained Earnings & Balance Sheet in good form.
General Ledger Balances at December 31, 2017 (a.k.a. T-Accounts)
Cash
Accounts Receivable
Prepaid Insurance
Beg. 62,290
Beg. 800
Beg. 3,000
End.
End.
End.
Supplies
Building
Accum. Depreciation – Bldg.
Beg. 2,000
Beg. 47,000
Beg. 0
End.
End.
End.
Equipment
Accum. Depreciation – Equip.
Land
Beg. 18,500
Beg. 0
Beg. 9,000
End.
End.
End.
Prepaid Rent
Beg. 4,800
Beg. 0
Beg. 0
End.
End.
End.
Accounts Payable
Unearned Revenue
Notes Payable
Beg. 1,250
Beg. 1,900
Beg. 12,000
End.
End.
End.
Interest Payable
Dividend Payable
Beg. 0
Beg. 0
Beg. 0
End.
End.
End.
Common Stock
Retained Earnings
Dividends
Beg. 80,000
Beg. 0
Beg. 0
End.
Service Revenue
Advertising Expense
Insurance Expense
Beg. 175,200
Beg. 2,060
Beg. 0
End.
End.
End.
Rent Expense
Salary Expense
Utilities Expense
Beg. 0
Beg. 115,200
Beg. 5,700
End.
End.
End.
________ Expense
________ Expense
________ Expense
Beg. 0
Beg. 0
Beg. 0
End.
End.
End.
Nicole’s Getaway Spa
Trial Balance
At December 31, 2017
Account Name
Debit
Credit
Cash
Accounts Receivable
Prepaid Insurance
Prepaid Rent
Supplies
Equipment
Accumulated Depreciation – Equipment
Building
Accumulated Depreciation – Building
Land
Accounts Payable
Unearned Revenue
Note Payable
Interest Payable
Dividend Payable
Common Stock
Dividends
Retained Earnings
Service Revenue
Advertising Expense
Insurance Expense
Interest Expense
Rent Expense
Salary & Wages Expense
Supplies Expense
Utilities Expense
Totals
Cash
Accounts Receivable
Prepaid Insurance
Beg. 62,290
Beg. 800
Beg. 3,000
End.
End.
End.
Explanation / Answer
In the books of Nicole's Gateway Spa:
Adjusting Entries:
Nicole's Gateaway Spa
Adjusted Trial Balance
December 31, 2017
Prepaid Rent
Account Titles Debit Credit December 31 2017 $ $ a. Rent Expense 2,400 Prepaid Rent 2,400 b. Depreciation Expense 2,000 Accumulated Depreciation : Building 2,000 c. Depreciation Expense 5,000 Accumulated Depreciation : Equipment 5,000 d. Salaries and Wages Expense 2,000 Accounts Payable 2,000 e. Insurance Expense 1,750 Prepaid Insurance 1,750 f. Supplies Expense 1,300 Supplies 1,300 g. Interest Expense 1,000 Interest Payable 1,000 h. Unearned Revenue 90 Service Revenue 90 i. Retained Earnings 1,000 Dividends Payable 1,000Related Questions
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