A Company had the following account balances at December 31. 2012: On March purc
ID: 442902 • Letter: A
Question
A Company had the following account balances at December 31. 2012: On March purchased a one-year malpractice insurance policy for $12, 000 cash, On July 1. borrowed $40.0CC cash from First American Bank for one year. The annual Interest rate on the borrowed amount is 10%. Employee salaries in the amount of $23, 000 were paid in cash during the year. At the end of the year. $1, 000 of the supplies remained on hand. Provided $100, 000 in consulting services during 2013 The entire amount was collected in cash from customers. At December 31. $20, 000 in employee salaries were owed (but not yet paid) to employees. On December 31. received S10.000 in cash representing advance payment for services to be provided in January 2014. Annual depreciation on the building is $24, 000. After you post all transactions and adjusting journal entries for 2013. what is the net income (loss) for the year ending December 31. 2013?Explanation / Answer
Journal entries are:
1. Insurance policy was purchased on March 1. This for the current year, it will be expensed in the books for 10 months and for January and February for next year will be treated as pre paid expense.
Amount of insurance = 12,000. for 10 months = 12,000*(10/12) = 10,000. This amount will be recored for current year and the balance 12,000 - 10,000 = 2,000 is prepaid expense.
Insurance expense (Dr) 10,000
Pre paid expense (Dr) 2,000
Cash (Cr) 12,000
2. Interest payable for 2013 = rate * principal amount *(number of months applicable for 2013/12). July to december = 6 months.
= 10% * 40,000* ( 6/12) = 2000
Interest expense (Dr) 2,000
Interest expense payable (Cr) 2,000
3. Salary expenses (Dr) 23,000
Cash (Cr) 23,000
4. Supply expense = opening supplies - closing supplies = 2,000 - 1,000 = $1,000
Supplies expense (Dr) 1,000
Supply stock (Cr) 1,000
5. Cash (Dr) 100,000
Revenue (Cr) 100,000
6. Salary expense (Dr) 20,000
Salary expense payable (Cr) 20,000
7. Cash (Dr) 10,000
Pre paid income (Cr) 10,000
8. Depreciation (Dr) 24,000
Accumulated depreciation (Cr) 24,000
Calculation of net income/loss:
Total revenue = 100,000. Total expense as shown in the table above = 80,000. Income = 100,000 - 80,000 = 20,000
Expenses Income Particulars Amount Particulars Amount Insurance $10,000 Revenue $100,000 Interest expense $2,000 Salary expense $23,000 Supplies used $1,000 Salary payable $20,000 Depreciation $24,000 Profit $20,000Related Questions
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