Chapter 12, Problem 1PB

To determine

Pass the adjusting entries for the transactions of Company BF as on December 31, 2019.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Pass the adjusting entry for the given transaction:

	General Journal			Page -18
Date	Description	Post Ref.	Debit	Credit
2019
December 31	Income Summary		$9,700
	Merchandise Inventory			$9,700
	(To record the beginning inventory)
December 31	Merchandise Inventory		$10,800
	Income Summary			$10,800
	(To record the closing inventory)
December 31	Unearned Seminar Fees (1)		$13,500
	Seminar Fees Income			$13,500
	(To record the unearned revenue)
December 31	Insurance expense (2)		$6,000
	Prepaid Insurance			$6,000
	(To record the prepaid insurance)
December 31	Depreciation Expense - Store Equipment (3)		$760
	Accumulated Depreciation - Store Equipment			$760
	(To record the depreciation on equipment)

Table (1)

	General Journal			Page - 18
Date	Description	Post Ref.	Debit	Credit
2019
December 31	Wage Expense		$1,000
	Wages Payable			$1,000
	(To record the wages payable)
December 31	Payroll Taxes Expense		$112.50
	Federal Unemployment Tax Payable			$6.00
	State Unemployment Tax Payable			$30.00
	Social Security Tax Payable			$14.50
	Medicare Tax Payable			$62.00
	(To record the taxes on accrued wages)
December 31	Uncollectible Accounts Expense (4)		$45,000
	Allowance for Doubtful accounts			$45,000
	(To record the uncollectible account)
December 31	Rent expense (5)		$4,500
	Prepaid Rent			$4,500
	(To record the prepaid rent)
December 31	Supplies Expense (6)		$450
	Supplies			$450
	(To record the supplies)
December 31	Interest expense (7)		$100
	Interest Payable			$100
	(To record the interest payable)

Table (2)

Working note (1):

Calculate the Unearned Seminar Fees:

$\begin{array}{c}\begin{array}{l}\text{Unearned }\\ \text{Seminar Fees}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Cash received }\\ \text{per seminar}\end{array}\right)\times \text{ 3 seminars}\\ =\frac{\$18,000}{\text{4 seminars}}\times \text{3 seminars}\\ =\text{ \$4,500}\times \text{3 seminars}\\ \text{= \$13,500}\end{array}$

Working note (2):

Calculate the Insurance expense:

$\begin{array}{c}\text{Insurance expense = Prepaid insurance }\times \left(\begin{array}{l}\text{Months of }\\ \text{Insurance expired}\end{array}\right)\\ =\frac{\$12,000}{6}\times 3\\ =\$2,000\times 3\\ \text{= \$6,000}\end{array}$

Working note (3):

Calculate the Depreciation Expense - Store Equipment:

$\begin{array}{c}\begin{array}{l}\text{Depreciation Expense }\\ \text{for Store Equipment}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Cost of equipment }\\ -\text{ salvage value}\end{array}\right)\text{per month}\times \text{ Months of use}\\ =\left(\frac{\$12,000-\$600}{\text{60 months}}\right)\times \text{4 months}\\ =\text{ \$190 }\times \text{4 months}\\ \text{= \$760}\end{array}$

Working note (4):

Calculate the Uncollectible Accounts Expense:

$\begin{array}{c}\begin{array}{l}\text{Uncollectible }\\ \text{Accounts Expense}\end{array}\}\text{ = Sales}\times \text{ Uncollectible Accounts Percentage}\\ =\$3,000,000\times \text{1}\text{.5\%}\\ =\text{ \$45,000}\end{array}$

Working note (5):

Calculate the Rent expense:

$\begin{array}{c}\text{Rent expense = Prepaid rent }\times \left(\begin{array}{l}\text{Months of }\\ \text{rent expired}\end{array}\right)\\ =\frac{\$13,500}{9}\times 3\\ =\$1,500\times 3\\ \text{= \$4,500}\end{array}$

Working note (6):

Calculate the Supplies Expense:

$\begin{array}{c}\text{Supplies Expense = Supplies at beginning }-\text{ Closing Supplies}\\ =\text{ \$600}-\$150\\ \text{= \$450}\end{array}$

Working note (7):

Calculate the Interest expense:

$\begin{array}{c}\text{Interest expense = Principal }\times \text{ Rate }\times \text{ Time factor}\\ =\text{\$15,000 }\times \text{ 8\% }\times \frac{1}{12}\\ \text{= \$100}\end{array}$

Calculate the balance amount in the unearned seminar fees.

$\begin{array}{c}\text{Unearned seminar fees}=\text{Cash received in advance}-\text{Cash earned}\\ =\$18,000-\$13,500\\ =\$4,500\end{array}$

Conclusion

The balance of the unearned seminar fees would be $4,500