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Concept explainers
Introduction: Each financial transaction or economic event will affect either assets, liabilities or owners’ equity. Thus the basis for recording these transactions in the accounting system depends on the
Adjustments: Number of
The necessary adjustments for each of the given situations on December 31, 2017.
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Answer to Problem 4.2.1P
Following are the adjustments required.
Depreciation expense $2,950- Supply expenses $19,350
- Customer deposits in advance $20,000
- Rent expenses $5,400
- Interest expense $3,000
- Wages expenses $500
Explanation of Solution
a. Adjustment for depreciation on office furniture purchased last year
Activity: Operating
Accounts:
Depreciation expense − Equipment. Increase
Equipment − Decrease.
Statements:
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Equipment ($2,950) | ($2,950) | Depreciation Expense − Furniture $2,950 | ($2,950) |
b. Adjustment for supplies used during the year
Activity: Operating
Accounts: Supply inventory. Decrease
Supplies expense. Increase
Statements: Balance sheet and Income statement
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Supply inventory ($19,350) | ($19,350) | Supply expenses $19,350 | ($19,350) |
Supplies consumed during the year
Supplies in hand on January 1, 2017 | $3,600 |
Supplies purchased during the year | $17,600 |
Less: Supplies in hand at the end of December 31, 2017 | ($1,850) |
Supplies consumed | $19,350 |
c. Adjustments for customer paid in advance.
Activity: Operating
Accounts: Customer deposits in advance. Decreases.
Revenue. Increase
Statement: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets= | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Customer deposit in advance ($20,000) | $20,000 | $20,000 | $20,000 |
Customer deposits for $24,000 received on August 1, 2017, to be used for six months.
As P Industries closes accounts in December every year. Hence deposits of five months from August to December can be used.
Customer deposit fivemonths $20,000 =
d. Adjustment for prepaid rent.
Activity: Operating
Accounts: Prepaid rent. Decreases
Rent expense. Increases
Statements: Balance sheet and income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Prepaid rent ($5,400) | ($5,400) | Rent expense $5,400 | ($5,400) |
P rented warehouse on November 1, 2017, with three-month prepaid rent, as P closes account in December, only two months’ rent out of three months advance payment is expensed that is $5,400 =
e. Adjustment for Interest on notes payable
Activity: Financing
Accounts: Interest payable. Increases
Interest expense. Increases
Statement: Balance sheet and Income Statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Interest payable $3,000 | ($3,000) | Interest expense $3,000 | ($3,000) |
120 days note taken for $200,000 at 9 percent interest payable at maturity. Hence interest for only 60 days or first two months can be taken this year
f. Adjustment for wages payable
Activity: Operating
Accounts: Wages payable. Increases
Wages expense. Increases
Statements: Balance sheet and Income statement.
Balance sheet | Income Statement | ||||
Assets = | Liability + | Stockholders’ equity | Revenues - | Expenses = | Net income |
Wages payable $500 | ($500) | $500 | ($500) |
As wages are paid every Thursday and month-end is Sunday, only three days from Friday to Sunday require adjustment.
The average daily pay is $500. As wages are paid on every Thursday, therefore, only wages for one day is taken that is only Friday.
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Chapter 4 Solutions
Using Financial Accounting Information
- At the beginning of the year, manufacturing overhead for the year was estimated to be $273,650. At the end of the year, the actual direct labor hours for the year were 27,400 hours, the actual manufacturing overhead for the year was $271,400, and the manufacturing overhead for the year was overapplied by $14,650. If the predetermined overhead rate is based on direct labor hours, then the estimated direct labor hours at the beginning of the year used in the predetermined overhead rate must have been___.arrow_forwardFind out Accounting MCQarrow_forwardAnswer pleasearrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
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