a. For each of the numbered paragraphs above, prepare the necessary adjusting entry (including an explanation). b. Determine that amount at which each of the following accounts will be reported in the company's 2021 income statement: Lesson Revenue Earned Advertising Expense Insurance Expense Rent Expense Sheet Music Supplies Expense Utilities Expense Depreciation Expense: Music Equipment Interest Expense Salaries Expense Income Taxes Expense
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
The Pan Man Limited provides music lessons to student musicians. Some students pay in advance for lessons; others are billed after lessons have been provided. Advance payments are credited to an account entitled Unearned Lesson Revenue.
Other Data
1. Accrued but unrecorded lesson revenue earned as of December 31, 2021, amounts to $3,200.
2. Records show that $800 of cash receipts originally recorded as unearned lesson revenue had been earned as of December 31.
3. The company purchased a 12-month insurance policy on August 1, 2021, for $4,800.
4. On October 1, 2021, the company paid $9,000 for rent through March 31, 2022.
5. Sheet music supplies on hand at December 31 amount to $200.
6. All music equipment was purchased when the business was first formed. Its estimated life at that time was five years (or 60 months).
7. On November 1, 2021, the company borrowed $5,000 by signing a three-month, 6 percent note payable. The entire note, plus three months' accrued interest, is due on February 1, 2022.
8. Accrued but unrecorded salaries at December 31 amount to $3,500.
9. Estimated income taxes expense for the entire year totals $22,000. Taxes are due in the first quarter of 2022.
Instructions:
a. For each of the numbered paragraphs above, prepare the necessary adjusting entry (including an explanation).
b. Determine that amount at which each of the following accounts will be reported in the company's 2021 income statement:
- Lesson Revenue Earned
- Advertising Expense
- Insurance Expense
- Rent Expense
- Sheet Music Supplies Expense
- Utilities Expense
Depreciation Expense: Music Equipment- Interest Expense
- Salaries Expense
- Income Taxes Expense
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