Question

A. On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.
b. A $324,000 note payable requires 9.0% annual interest, or $2,430, to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $810 of interest expense has accrued.
c. Total weekly salaries expense for all employees is $14,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees had worked two days since the last payday. The next payday is May 3.

Required:
The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses.

Answer 1

Answer:

Journal Entries for April and May

a. April 30:

Debit Legal Fee Expense $3,500

Credit Legal Fee Payable $3,500

To record the legal fee expense for April.

May 12:

Debit Legal Fee Payable $3,500

Credit Cash  $3,500

To record the payment of April legal fee.

b. April 30:

Debit Interest Expense $2,430

Credit Cash $1,620

Credit Interest Expense Payable $810

To record accrued interest expense

May 20:

Debit Interest Expense Payable $810

Credit Cash $810

To record the payment of accrued interest.

c. April 30:

Debit Salary Expense $5,600

Credit Salary Expense Payable $5,600

To record the salary expense for 2 days accrued.

May 3:

Debit Salary Expense Payable $5,600

Debit Salary Expense $8,400

Credit Cash $14,000

To record the payment of salary for the week.

Explanation:

We have used the journal entries to adjust accrued expenses and also to record the actual payment when they occur.  Journal entries help to record transactions as they occur and to make adjustments at the end of the accounting period so that accruals, prepayments, deferred revenue, and depreciation expense are properly recorded when they occur and not when payment is made.