Clapton Guitar Company entered into the following transactions during the year. [The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.] Date Transaction Jan. 25 Purchased $480 of office supplies. Feb. 1 Rented a warehouse from Hendrix Company, paying 1 year’s rent of $3,600 in advance. Recorded the $3,600 payment as rent expense. Mar. 1 Borrowed $10,000 from the bank, signing a 1-year note at an annual interest rate of 12%. The bank insisted on collecting the interest in advance, so it withheld the interest amount from the funds disbursed to Clapton. The company recorded the transaction as a debit to Cash, $8,800, a debit to Interest Expense, $1,200, and a credit to Notes Payable, $10,000. May 1 Purchased office equipment for $15,000, paying $3,000 down and signing a 2-year, 12% (annual rate) note payable for the balance. The office equipment is expected to have a useful life of 10 years and a residual value of $1,500. Straight-line depreciation is appropriate. May 31 Purchased a 3-year comprehensive insurance policy for $720. Aug. 1 Sold land for $9,000. The purchaser made a $2,000 down payment and signed a 1-year, 10% note for the balance. The interest and principal will be collected on the maturity date. Oct. 1 Rented a portion of the retail floor space to Harrison Inc. for $120 per month, collecting 8 months’ rent in advance. Recorded the $960 receipt as rent revenue. Nov. 13 Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year. On December 31, the following additional information is available: 1. Property taxes for the current year are due to be paid by April 1 of next year. The company has not paid or recorded its $2,300 property taxes for the current year. 2. The $302 December utility bill has not been recorded or paid. 3. Salaries accrued but not paid total $927. 4. Travel cost reports indicate that $787 of the $900 advanced has been used to pay for travel expenses by company personnel. 5. The Office Supplies account had a balance of $129 on January 1. A physical count on December 31 showed $174 of office supplies on hand. 6. On January 1, the Buildings account and the Store Equipment account had balances of $100,000 and $65,000, respectively. The buildings are expected to have a 20-year useful life and an $8,000 residual value, while the store equipment is expected to have a 10-year life and a $2,000 residual value. They are being depreciated using the straight-line method. 7. The income tax rate is 30% on current income and is payable in the first quarter of next year. The pretax income of the company before adjustments is $27,749. Required: On the basis of the preceding information, prepare journal entries to adjust Clapton’s books as of December 31.

Clapton Guitar Company entered into the following transactions during the year. [The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.] Date Transaction Jan. 25 Purchased $480 of office supplies. Feb. 1 Rented a warehouse from Hendrix Company, paying 1 year’s rent of $3,600 in advance. Recorded the $3,600 payment as rent expense. Mar. 1 Borrowed $10,000 from the bank, signing a 1-year note at an annual interest rate of 12%. The bank insisted on collecting the interest in advance, so it withheld the interest amount from the funds disbursed to Clapton. The company recorded the transaction as a debit to Cash, $8,800, a debit to Interest Expense, $1,200, and a credit to Notes Payable, $10,000. May 1 Purchased office equipment for $15,000, paying $3,000 down and signing a 2-year, 12% (annual rate) note payable for the balance. The office equipment is expected to have a useful life of 10 years and a residual value of $1,500. Straight-line depreciation is appropriate. May 31 Purchased a 3-year comprehensive insurance policy for $720. Aug. 1 Sold land for $9,000. The purchaser made a $2,000 down payment and signed a 1-year, 10% note for the balance. The interest and principal will be collected on the maturity date. Oct. 1 Rented a portion of the retail floor space to Harrison Inc. for $120 per month, collecting 8 months’ rent in advance. Recorded the $960 receipt as rent revenue. Nov. 13 Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year. On December 31, the following additional information is available: 1. Property taxes for the current year are due to be paid by April 1 of next year. The company has not paid or recorded its $2,300 property taxes for the current year. 2. The $302 December utility bill has not been recorded or paid. 3. Salaries accrued but not paid total $927. 4. Travel cost reports indicate that $787 of the $900 advanced has been used to pay for travel expenses by company personnel. 5. The Office Supplies account had a balance of $129 on January 1. A physical count on December 31 showed $174 of office supplies on hand. 6. On January 1, the Buildings account and the Store Equipment account had balances of $100,000 and $65,000, respectively. The buildings are expected to have a 20-year useful life and an $8,000 residual value, while the store equipment is expected to have a 10-year life and a $2,000 residual value. They are being depreciated using the straight-line method. 7. The income tax rate is 30% on current income and is payable in the first quarter of next year. The pretax income of the company before adjustments is $27,749. Required: On the basis of the preceding information, prepare journal entries to adjust Clapton’s books as of December 31.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter6: Cash And Receivables

Section: Chapter Questions

Problem 10RE: On December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to...

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