Chapter 13, Problem 4PB

1.

To determine

Journalize the adjusting entries 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 - 25
Date	Description	Post Ref.	Debit	Credit
2019
December 31	Income Summary		$16,985
	Merchandise Inventory			$16,985
	(To record the beginning inventory)
December 31	Merchandise Inventory		$15,840
	Income Summary			$15,840
	(To record the closing inventory)
December 31	Uncollectible Accounts Expense		$1,280
	Allowance for Doubtful Accounts			$1,280
	(To record the estimated loss on the net credit sale)
December 31	Supplies Expense		$505
	Supplies			$505
	(To record the Supplies used)

Table (1)

	General Journal			Page - 26
Date	Description	Post Ref.	Debit	Credit
2019
December 31	Insurance expense		$1,200
	Prepaid Insurance			$1,200
	(To record the prepaid insurance)
December 31	Depreciation Expense - Store Equipment		$1,000
	Accumulated Depreciation - Store Equipment			$1,000
	(To record the depreciation on equipment)
December 31	Depreciation Expense - Store Fixtures		$2,050
	Accumulated Depreciation - Store Fixtures			$2,050
	(To record the depreciation on equipment)
December 31	Interest expense		$90
	Interest Payable			$90
	(To record the interest payable)
December 31	Salaries Expense		$1,450
	Salaries Payable			$1,450
	(To record the salaries payable)
December 31	Payroll Taxes Expense		$192.13
	Federal Unemployment Tax Payable			$8.70
	State Unemployment Tax Payable			$72.50
	Social Security Tax Payable			$89.90
	Medicare Tax Payable			$21.03
	(To record the taxes on accrued wages)

Table (2)

2.

To determine

Journalize the closing entries as on December 31, 2019.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Pass the closing entries:

	General Journal			Page - 27
Date	Description	Post Ref	Debit	Credit
2019
December 31	Sales		$236,560
	Purchases Returns and allowances		$2,000
	Income Summary			$238,560
	(To record the closing entry for the income)
December 31	Income Summary		$47.87
	PA Capital			$47.87
	(To record the closing entry for the capital)
December 31	PA Capital		$8,000
	PA Drawings			$8,000
	(To record the closing entry for the capital)

Table (3)

	General Journal			Page - 28
Date	Description	Post Ref	Debit	Credit
2019
December 31	Income Summary		$237,367.13
	Sales Returns and Allowances			$6,000
	Purchases			$160,000
	Rent Expense			$18,000
	Telephone Expense			$2,400
	Salaries Expense			$41,450
	Payroll Taxes Expense			$3,392.13
	Supplies Expense			$505
	Insurance expense			$1,200
	Depreciation Expense - Store Equipment			$1,000
	Depreciation Expense - Store Fixtures			$2,050
	Uncollectible Accounts Expense			$1,280
	Interest Expense			$90
	(To record the closing entry for the expenses)

Table (4)

3.

To determine

Journalize the reversing entries as on January 1, 2020 and identify the journal entry to be passed if Salaries are paid on January 4, 2020.

Explanation of Solution

Reversing entries: Reversing entries are those entries which are recorded at the beginning of the year, to reverse or set right the adjusting entries made in the end of the previous accounting year, in order to maintain the records according to accrual basis principle.

Pass the reversing entries:

	General Journal			Page - 29
Date	Description	Post Ref	Debit	Credit
2020
January 1	Interest Payable		$90
	Interest Expense			$90
	(To record the reversing entry for interest payable)
January 1	Salaries Payable		$1,450
	Salaries Expense - Office			$1,450
	(To record the reversing entry for salaries payable)
January 1	Social Security Tax Payable		$89.90
	Medicare Tax Payable		$21.03
	Federal Unemployment Tax Payable		$8.70
	State Unemployment Tax Payable		$72.50
	Payroll Taxes Expense			$192.13
	(To record the reversing entry for payroll taxes payable)

Table (5)

	General Journal			Page - 30
Date	Description	Post Ref	Debit	Credit
2020
January 4	Salaries Payable		$1,450
	Salaries Expense		$1,150
	Cash			$2,600
	(To record the payment of salaries ignoring the payroll taxes)

Table (6)