Journal Entries and Adjustments in Corporate Accounting

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University of Waterloo *

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Accounting

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Jun 12, 2024

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Part 1 Consider the following transactions for BorrowIP Corporation. March 1 Paid interest due on note payable, $2,500. Dec 31 Interest accrued on note payable, $4,250. Assume that the Interest Payable account had a beginning balance of $2,500. Requirements: 1. Prepare journal entries to record the above transactions. 2. Create a T-account for Interest Payable, post any entries that affect the account, and tally the ending balance for the account. 1.1 BorrowIP Corporation General Journal Date Account Name Debit Credit March 1 Interest Payable 2500 Cash 2500 Paid interest due on notes payable. Dec 31 Interest Expense 4250 Accrued Interest Payable 4250 To record for interest accrued on notes payable. 1.2 Interest Payable Debit Credit 2500 2500 4250 4250 Part 2 AFM 123 / ARBUS 102 — Accounting Information for Managers page 1 of 5

Consider the following unadjusted account balances for the year ended December 31, 2022, as prepared by the bookkeeper of Something-Wrong Inc. The bookkeeper is new to the job and prepared the trial balance listing in alphabetical account name order (assume accounts have normal balances). Accounts payable ..................................................... $ 9,50 0 Accounts receivable ................................................. 14,2 60 Cash .......................................................................... 22,2 22 Share capital (Common shares) ............................... 30,0 00 Dividends .................................................................. 5,0 00 Equipment ................................................................ 12,0 00 Prepaid insurance ..................................................... 25,4 44 Land .......................................................................... 20,0 00 Notes payable (due next month) ............................. 25,3 00 Retained earnings ..................................................... 12,8 15 Insurance expense .................................................... 12,6 89 Service revenue ........................................................ 89,5 50 Supplies inventory .................................................... 2,7 50 Salaries expense ....................................................... 53,5 00 Salaries payable ........................................................ 700 Requirements: 1. Prepare the adjusting journal entry given that the remaining unpaid salaries due to employees at the end of the period is $2,000. AFM 123 / ARBUS 102 — Accounting Information for Managers page 2 of 5

2. Prepare the adjusting journal entry given that the Accrued Interest Payable with on the note payable at the end of the period is $1,490. 3. Prepare the adjusting journal entry given that the insurance still unexpired/unused at the end of the period is $12,000. 4. Equipment was recently purchased, so there is neither depreciation expense nor accumulated depreciation recorded in the accounting records yet. The equipment is expected to have a 8 year useful life, and a residual value of $1,400. Prepare the adjusting journal entry to record the depreciation for the 2022 fiscal year. 5. Prepare a corrected adjusted trial balance as at December 31, 2022 from the above account information, and also considering the adjustment data provided. 6. Prepare an income statement for the year ended December 31, 2022. 2.1 Something-Wrong Inc. General Journal Date Account Name Debit Credit Dec. 31 Salaries Expense 1,300 Salaries Payable 1,300 To recognize salaries payable earned but not yet paid out. 2.2 Something-Wrong Inc. General Journal Date Account Name Debit Credit Dec. 31 Interest Expense 1,490 Accrued Interest Payable 1,490 To recognize accrued interest on notes payable that has not yet been paid. 2.3 Something-Wrong Inc. General Journal Date Account Name Debit Credit Dec. 31 Insurance Expense 13,444 Prepaid Insurance 13,444 AFM 123 / ARBUS 102 — Accounting Information for Managers page 3 of 5

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To record for how much insurance is unused at the end of the period. 2.4 Equipment value of $12,000 8 years and ending residual value of 1,400—means equipment goes down in value by 1325/year (calculated by ((12,000-1,400)/8)) 2.5 Something-Wrong Inc. Adjusted Trial Balance For the year-ended December 31, 2022 Account Debit Credit Cash $22,222 Accounts Receivable 14,260 Equipment 12,000 Accumulated Depreciation 1,325 Prepaid Insurance Land Supplies Inventory Accounts Payable Notes Payable Salaries Payable Interest Payable Share Capital Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Interest Expense Depreciation Expense AFM 123 / ARBUS 102 — Accounting Information for Managers page 4 of 5

Part 3 Consider the following information for X Corporation: • Retained earnings balance January 1, 2022, $121,500. • Share capital balance January 1, 2022, $27,000. • Net income for year 2022, $145,817. • Dividends declared and paid for year 2022, $53,275. • Additional share capital issued May 31, 2022, $4,000. Requirements: 1. Using the above information, prepare a formal Statement of Changes in Equity. X Corporation Statement of Changes in Equity For the year-ended December 31,2022 Share Capital Retained Earnings Total Equity Opening Balance $27,000 $121,500 $148,500 Shares Issued 4,000 4,000 Net Income 145,817 145,817 Dividends (53,275) (53,275) Ending Balance $31,000 $214,042 $245,042 AFM 123 / ARBUS 102 — Accounting Information for Managers page 5 of 5