Chapter 3, Problem 2BPSB

REQUIREMENT 1

To determine

TO PREPARE:

Adjusting Journal Entries for year ended October, 15

Answer to Problem 2BPSB

SOLUTION:

IN THE BOOKS OF NATSU Co.
JOURNAL ENTRIES
FOR THE Year Ended 31-October-15
Srl No.	PARTICULARS	DEBIT ($)	CREDIT ($)
1	SUPPLIES EXPENSES A/C	4,370
	TO OFFICE SUPPLIES A/C		4,370
	(Being utilization of office supplies charged as office expenses)
2	INSURANCE EXPENSES - Policy A A/C	3000
	TO PREPAID INSURANCE - A A/C		3000
	(Being current year expired insurance recognized as an expense)
3	INSURANCE EXPENSES - Policy B A/C	1400
	PREPAID INSURANCE - Policy C A/C	5800
	TO CASH A/C		7200
	(Being current year expired insurance recognized as an expense and remaining transfer to prepaid expense as an asset)
	330
4	PREPAID INSURANCE - Policy C A/C	990
	TO CASH A/C		1320
	(Being current year expired insurance recognized as an expense and remaining transfer to prepaid expense as an asset)
5	WAGES EXPENSES A/C	1000
	TO ACCRUED WAGES A/C		1000
	(Being wages for 1 days of October recognized)
6	DEPRECIATION EXPENSES A/C	5400
	TO ACCUMULATED DEPRECIATION A/C		5400
	(Being depreciation expenses recognized )
7	RENT RECEIVABLE A/C	1000
	TO RENT EARNED A/C		1000
	(Being rent earned for October were recognized)
8	UNEARNED RENT A/C	1450
	TO RENT EARNED A/C		1450
	(Being rent earned for Sept & Oct recognized as per accrual basis)

Explanation of Solution

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

  $\begin{array}{l}Officesupplies,December31,2014\text{ = \$600}\\ Add:Purchasesduringtheyear\text{ = \$4570}\\ Less:ChargedtoExpenses\left(b/f\right)\text{ = }\underset{\_}{\text{\$4370}}\\ Officesupplies,December31,2015=\text{ \$800}\end{array}$
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	6000	24	250	12	3000
B	7200	36	200	7	1400
C	1320	12	110	3	330

3. Wages expenses incurred in current year should be recognized as expenses in current year as per accrual basis of accounting. Hence wages for 1 days (31^st October, 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 September and October, and the Advance liabilities reduced as per the recognition of Income.

Conclusion

Thus, the adjusting Journal Entries for year ended October, 15 have been prepared.

REQUIREMENT 2

To determine

TO PREPARE

Journal for cash entries on 7^th and 15^th November, 15

Answer to Problem 2BPSB

SOLUTION

IN THE BOOKS OF NASTU CO.
JOURNAL ENTRIES
7-Nov-15	WAGES EXPENSES A/C	4000
	ACCRUED WAGES A/C	1000
	TO CASH A/C		5000
	(Being wages payment for current and previous year)
15-Nov-15	CASH A/C	2000
	TO RENT RECEIVABLE A/C		1000
	TO RENT EARNED A/C		1000
	(Being rent received for current and previous year)

Explanation of Solution

The above journal entries are prepared as under −

Jan 06: Wages paid on 7^th Nov, 2015 includes the wages of 1 day from the October and 4 days of November, hence the Liabilities reduced for October and Expenses charged for November

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

• Accrued Wages for October = $ 1,000

For November, Wages expense −

• Wages for 1 day = $ 1,000
• Number of days in November = 4

  $\begin{array}{l}WagesexpenseforNovember=Wagesfor1dayXNumberofdaysinNovember\hfill \\ WagesexpenseforNovember=\$1,000X\text{ 4}\hfill \\ WagesexpenseforNovember=\$\text{ 4,000}\hfill \end{array}$

Total cash to be paid −

$\begin{array}{l}Totalcash=AccruedWagesforOctober+WagesExpenseforNovember\hfill \\ Totalcash=\$\text{ 1,0}00+\$\text{ 4,00}0\hfill \\ Totalcash=\$\text{ 5,0}00\hfill \end{array}$

Jan 15: Earned Rent received in November includes the Rent of October 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.