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notsponge [240]
3 years ago
13

The following data relate to the accounts of Edmiston Company. a. Unpaid salaries and wages at year end amount to $750. b. Edmis

ton Company owns bonds of another corporation that pay annual interest of $800. These bonds were purchased on April 1, 2017, and the next interest payment will be received on April 1, 2018. c. A two-year insurance policy was purchased on June 1, 2017. The $1,200 insurance premium was paid on that date and was debited to Prepaid Insurance. d. Service Revenue was credited for $900 on June 1, 2017. The amount represents a one-year advance payment for services to be performed by Edminston Company through May 31, 2018. e. The Supplies account shows a balance of $2,500 on December 31, 2017. A physical count of the supplies on hand at this date reveals a total of $1,000 available. Prepare the necessary adjusting journal entries indicated by each item for the year ended December 31, 2017.
Business
1 answer:
AVprozaik [17]3 years ago
4 0

Answer:

a. Debit  Salaries and wages expense   $750

   Credit Accrued Salaries and wages   $750

Being entries to record accrued salaries and wages

b. Debit Interest receivable $600

   Credit Interest income     $600

Being entries to record interest earned

c. Debit Insurance expense $350

   Credit Prepaid Insurance  $350

Being entries to record insurance expense

d. Debit Service revenue  $900

   Credit Unearned Service revenue  $900

Being entries to record unearned revenue

e. Debit Supplies expense  $1,500

   Credit Supplies account   $1,500

Being entries to record supplies expense

Explanation:

When salaries are incurred but yet to be paid, the expense has to be recorded with a corresponding liability known as accrued expense. When interest is earned but yet to be paid, it has to be recognized as a credit to the income statement and a debit to the balance sheet.

When insurance is paid in advance, the entries required are  

Debit Prepaid Insurance

Credit Cash account

As time elapses and the insurance expires,

Debit Insurance expense

Since payment was for 2 years, period elapsed as at December 31, 2017 is 7 months hence amount of expense

= 7/24 * $1,200

= $350

When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are

Debit Cash account and Credit Unearned fees or deferred revenue.

As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.

When Supplies is purchased, Debit supplies and credit Cash/Accounts payable. As Supplies are used up, debit supplies expense (with the amount used) and Credit Supplies account.

Amount of supplies used

= $2500 - $1000

= $1,500

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2. See the adjusting journal entries and explanation in part 2. below.

Explanation:

Note: The data in the question are merged and they are first sorted in the attached excel file before the questions are answered as follows:

1. Complete the bank reconciliation at December 31, 2019.

The bank reconciliation is presented in two ways as follows:

<u>a) Starting with cash book balance</u>

Gibson Energy Ltd.

Bank Reconciliation  

at 31 December 2019  

<u>Particulars                                                                  Amount ($)    </u>

Cash book bal. at 31 Dec. yet to be reconciled          62,000

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Bank service charge                                                 <u>         (60)   </u>

Adjusted cash balance at Dec 31                           <u>   133,620   </u>

<u>b) Starting with bank statement balance</u>

Gibson Energy Ltd.

Bank Reconciliation  

at 31 December 2019  

<u>Particulars                                                                       Amount ($)    </u>

Bank statement bal. at Dec 31 yet to reconciled              131,620

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Outstanding checks 239                                                <u>    (77,000)   </u>

Adjusted bank statement balance at Dec. 31             <u>     133,620   </u>

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<u>Date      Accounts title & explanation              DR ($)           CR ($)  </u>

31 Dec 19    Cash                                                80,000  

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<em><u>                   (To record note receivable & int. collected from XYZ)     </u></em>

31 Dec 19   Overdraft interest expense                1,320

                  Service charge                                        60

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<em><u>                    (To record interest expense and bank charges)                   </u></em>

31 Dec 19   Account Receivable                           7,000

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