Chapter 2, Problem 2.8P

Adjusting entries

• LO2–5

Excalibur Corporation sells video games for personal computers. The unadjusted trial balance as of December 31, 2018, appears below. December 31 is the company’s fiscal year-end. The company uses the perpetual inventory system.

Account Title	Debits	Credits
Cash	23,300
Accounts receivable	32,500
Supplies	–0–
Prepaid rent	–0–
Inventory	65,000
Office equipment	75,000
Accumulated depreciation— office equipment		10,000
Accounts payable		26,100
Salaries and wages payable		3,000
Note payable		30,000
Common stock		80,000
Retained earnings		16,050
Sales revenue		180,000
Cost of goods sold	95,000
Interest expense	–0–
Salaries and wages expense	32,350
Rent expense	14,000
Supplies expense	2,000
Utility expense	6,000
Totals	345,150	345,150

Information necessary to prepare the year-end adjusting entries appears below.

1. The office equipment was purchased in 2016 and is being depreciated using the straight-line method over an eight-year useful life with no salvage value.

2. Accrued salaries and wages at year-end should be $4,500.

3. The company borrowed $30,000 on September 1, 2018. The principal is due to be repaid in 10 years. Interest is payable twice a year on each August 31 and February 28 at an annual rate of 10%.

4. The company debits supplies expense when supplies are purchased. Supplies on hand at year-end cost $500.

5. Prepaid rent at year-end should be $1,000.

Required:

Prepare the necessary December 31, 2018, adjusting entries.