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a)Question 1 (20 marks) The following accounts appeared in the December 31 trial balance: 0
a)Question 1 (20 marks) The following accounts appeared in the December 31 trial balance: 0.000 Ace. No pay Solare Salinese 2.000 Inn????? ????? 2000 Consider the following transactions The equipment has a useful life of 16 years and a salvage value of S40.000 ST-line depreciation applies b. The note payable is a 90-day note given to the bank on October 20 and bearing interest at 10%. c. In December, 2,000 coupons were sold at $25 cach, they can be used for admission any time after January 1. d. of the advertising expense balance, S1,100 is paid in advance c. Salaries accrued but unpaid are $11,800. Required: Part a. (10 marks) Prepare the adjusting entries necessary on December 31 Part b. (10 marks) What amounts should be shown for cach of the following on the income statement for the year? Interest expense Sales revenue Advertising expense Salaries and wages expense
Expert Solution
Part - a
Adjustment Entries
| Date | Description | Debit | Credit |
| December, 31 | |||
| a) | Depricition Account | 57500 | |
| Accumulated Depriciation Account | 57500 | ||
| ( Being depriciation expense adjusted ) | |||
| b) | Interest Expense Account | 4586 | |
| Outstanding Interest Expense Account | 4586 | ||
| ( Being interest expense adjusted ) | |||
| c) | Sales Revenue Account ( 2000 X 25 ) | 50000 | |
| Unearned Sales Revenue Account | 50000 | ||
| ( Being sales revenue adjusted ) | |||
| d) | Prepaid Advertising Expense Account | 1100 | |
| Advertising Expense Account | 1100 | ||
| ( Being advertisisng expense adjusted ) | |||
| e) | Salaries Expense Account | 11800 | |
| Outstanding Salaries Expense Account | 11800 | ||
| ( Being outstanding salaries adjusted ) | |||
Working Note
1)
Straight Line Depriciation = ( Value of the Asset - Salvage Value ) / Life of the Asset
So, the Depriciation of the Equipment = [ ( 960000 - 40000 ) / 16 ] = $57500
2)
Interest On Notes Payble = (186000 X 10/100 X 90/365 ) = $4586
Part -b)
Interest Expense = ( Interest Expense + Outstanding Insureance Expense ) [ 9000 + (186000 X 10 /100 X 90/365 ) ] = $13586
Sales Revenue = ( Sales Revenue - Unearned Sales Revenue ) = ( 750000 - 50000 ) = $700000
Advertising Expense = ( Advertising Expense - Prepaid Expense ) = ( 62000 - 1100 ) = $60900
Salaries and Wages Expense = ( Salaries and Wages Expense + Outstanding Salaries and Wages Expense ) = ( 80000 + 11800 ) = $91800
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