Question

In each of the following transactions ( a ) through ( c ) for Romney's Marketing Company, use the three step process illustrated in the chapter to record the adjusting entry at year-end December 31, 2015. The process includes (1) determining if revenue was earned or an expense incurred, (2) determining whether cash was received or paid in the past or will be received or paid in the future, and (3) computing the amount of the adjustment.
a. Estimated electricity usage at $450 for December; to be paid in January of next year.
b. On September 1 of the current year, loaned $6,000 to an officer who will repay the loan principal and interest in one year at an annual interest rate of 14 percent.
c. Owed wages to 10 employees who worked four days at $200 each per day at the end of the current year. The company will pay employees at the end of the first week of next year.

Answer 1

Answer:

Romney's Marketing Company

Using the three-step process to record the adjusting entry at year-end December 31, 2015:

a1. Expense was incurred

2. Cash will be paid in the future

3. The amount of the adjustment is $450

b1. Revenue was earned at December 31, 2015

2. Cash will be received in the future.

3. The amount of the adjustment is $280.

c1. Expense was incurred.

2. Cash will be paid in the future.

3. The amount of the adjustment is $8,000.

Explanation:

a) Data and Calculations:

Interest receivable = $280 ($6,000 * 14% * 4/12)

b) The three-step process for recording the adjusting entry at year-end:

(1) determining if revenue was earned or an expense incurred.

(2) determining whether cash was received or paid in the past or will be received or paid in the future.

(3) computing the amount of the adjustment.