Chapter 3, Problem 2APSA

Requirement 1

To determine

To Prepare Adjusting Journal Entries for Dec 31, 2015

Answer to Problem 2APSA

SOLUTION

IN THE BOOKS OF RNEZ CO.
JOURNAL ENTRIES
FOR THE PERIOD 31-Dec-15
Srl No.	PARTICULARS	DEBIT ($)	CREDIT ($)
1	SUPPLIES EXPENSES A/C	14,846
	TO OFFICE SUPPLIES A/C		14,846
	(Being utilization of office supplies charged as office expenses)
2	INSURANCE EXPENSES - Policy A A/C	1800
	TO PREPAID INSURANCE - A A/C		1800
	(Being current year expired insurance recognized as an expense)
3	INSURANCE EXPENSES - Policy B A/C	4320
	TO PREPAID INSURANCE - Policy B A/C		4320
	(Being current year expired insurance recognized as an expense)
4	INSURANCE EXPENSES - Policy C A/C	1000
	PREPAID INSURANCE - Policy C A/C	1400
	TO CASH A/C		2400
	(Being current year expired insurance recognized as an expense and remaining transfer to prepaid expense as an asset)
5	WAGES EXPENSES A/C	3920
	TO ACCRUED WAGES A/C		3920
	(Being wages for 2 days of December recognized)
6	DEPRECIATION EXPENSES A/C	30500
	TO ACCUMULATED DEPRECIATION A/C		30500
	(Being depreciation expenses recognized )
7	RENT RECEIVABLE A/C	3000
	TO RENT EARNED A/C		3000
	(Being rent earned for December were recognized)
8	UNEARNED RENT A/C	5600
	TO RENT EARNED A/C		5600
	(Being rent earned for Nov & Dec recognized as per accrual basis)

Explanation of Solution

The above journal entries are prepared as under −

1. Office supplies that has been used during the year charged as expenses.

Office supplies, December31, 2014    -    $ 4000

Add: Purchases during the year     -    $ 13400

Less: Charged to Expenses (b/f)   -   $ 14864


Office supplies, December 31, 2015   -   $ 2554

2. The insurance expense for adjusting entry 2,3 and 4 is calculated as under −

Insurance Expenses will be charged as per the number of months expired in year 2015

Policy	Cost	Month	Cost/Month	No of month in year 2015	Insurance Expenses
A	14400	24	600	3	1800
B	12960	36	360	12	4320
C	2400	12	200	5	1000

3. Wages expenses incurred in current year should be recognized as expenses in current year as per accrual basis of accounting. Hence wages for 2 days (30 & 31^st December, 2015 should be recognized as the expense of 2015.
4. Depreciation has been charged to expenses and Accumulated Depreciation A/c
5. Rent earned in December should be recognized as Income in current year as per accrual basis of accounting.
6. Income from Rent recognized for the month of November and December, and the Advance liabilities reduced as per the recognition of Income.

Conclusion

Thus, the adjusting journal entries have been prepared for

Requirement 2

To determine

To prepare:

Journal for cash entries on 6^th and 15^th January, 16

Answer to Problem 2APSA

Solution:

IN THE BOOKS OF ARNEZ COMPANY
JOURNAL ENTRIES
6-Jan-16	WAGES EXPENSES A/C	5,880
	ACCRUED WAGES A/C	3,920
	TO CASH A/C		9,800
	(Being wages payment for current and previous year)
15-Jan-16	CASH A/C	6,000
	TO RENT RECEIVABLE A/C		3,000
	TO RENT EARNED A/C		3,000
	(Being rent received for current and previous year)

Explanation of Solution

The above journal entries are prepared as under −

Jan 06: Wages paid on 6^th Jan, 2016 includes the wages of 2 days from the December and 3 days of January, hence the Liabilities reduced for December and Expenses charged for January.

The wages are calculated as under −
Given,
For December -

• Accrued Wages for December = $ 1,960

For January, Wages expense −

• Wages for 1 day = $ 1,960
• Number of days in January = 3

  $\begin{array}{l}WagesexpenseforJanuary=Wagesfor1dayXNumberofdaysinJanuary\hfill \\ WagesexpenseforJanuary=\$1,960X3\hfill \\ WagesexpenseforJanuary=\$5,880\hfill \end{array}$

Total cash to be paid −

  $\begin{array}{l}Totalcash=AccruedWagesforDecember+WagesExpenseforJanuary\hfill \\ Totalcash=\$3,900+\$5,880\hfill \\ Totalcash=\$9,800\hfill \end{array}$

Jan 15: Earned Rent received in January includes the Rent of December also, Hence the Rent receivable reduced and Income Realized as per accrual basis of accounting.

Conclusion

Thus, the journal for cash entries on 6^th and 15^th January, 16 have been prepared.