Question 27 Dr. Cr. No. Account Titles and Explanation Debit Credit No. Account

Question

Question 27

Dr.

Cr.

No.

Account Titles and Explanation

Debit

Credit

No.

Account Titles and Explanation

Debit

Credit

No.

Account Titles and Explanation

Debit

Credit

Question 27

A partial trial balance of Headland Corporation is as follows on December 31, 2018.

Dr.

Cr.

Supplies $2,600 Salaries and wages payable $1,600 Interest Receivable 5,600 Prepaid Insurance 96,000 Unearned Rent 0 Interest Payable 14,400
Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2018, totaled $1,200. 2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,000. 3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $4,700 on December 31, 2018. 4. The unexpired portions of the insurance policies totaled $66,000 as of December 31, 2018. 5. $26,400 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue. 6. Depreciation on equipment for the year was erroneously recorded as $5,200 rather than the correct figure of $52,000. 7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,200 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Explanation / Answer

Part 1 - Adjusting entries if books are not closed

Part 2 - Adjusting entries if books are closed

Part 3 - Adjusting entries if books are closed and tax rate is @40%

Number Journal Debit Credit 1 Supplies expenses ($2600 - $1200) $1400 Supplies on hand $1400 ($1400 of supplies has been consumed and charged to expense account) 2 salary & wages expenses ($4000 - $1600) $2400 Accrued salary and wages $2400 (salary expenses have been booked of year 2018) 3 Interest revenue ($5600 - $4700) $900 Interest Receivable $900 (Interest revenue reversed for diffrence amount.) 4 Insurance expenses ($96000 - $66000) $30000 Prepaid insurance expenses $30000 (Prepaid insurance balance is $66000 hence $96000 has been reversed to insurance expenses account. 5 Rent Income ($26400/2) $13200 Unearned revenue $13200 (Rent income of year 2019 is transferred to unearned rent as per matching concept) 6 Depreciation expenses ($52000-$5200) $46800 Accumulated depreciation-equipment $46800 (Balance depreciation charged to depreciation expenses account) 7 Retained earnings $7200 Accumulated depreciation-equipment $7200 (Prior period depreciation charged to retained earnings since prior period books are closed.)

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