Question

Question 14

Johnson’s boat Yard, Inc, repairs, store, and cleans boats for customers. It is completing the accounting process for the year just ended on November 30. The transaction for the past year have been journalized and posted. The following data will respect to adjusting entries at year-end are available.

a. Johnson’s winterized (clean and covered) three boats for customers at the end of November but did not record the service for $3,300.

b. On Oct 1, Johnson’s paid $2,200 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have ben run except for three. Thursdays in December to complete the 12-week contract.

c. Johnson’s borrowed $300,000 at an 11 percent annual interest rate on April 1 of the current year to expand its boast storage facility. The loan requires Johnson’s to pay the interest quarterly until the note is repaid in three year. Johnson’s paid quarterly interest on July 1 and October 1.

d. The Sanjeev family paid Johnson $4,500 on November 1 to store its sailboat for the winter until May 1 of the next fiscal Johnson’s credited the full mount to Unearned Storage Revenue on November 1.

e. Johnson’s used boat-lifting equipment that cost $180,000; $18,000 was the estimated depreciation for the current year.

f. Boat repair supplies on hand at the beginning of the current year totaled $18,900. Repair supplies purchased and debited to Supplies during the year amounted to $45,200. The year-end count show $15,600 of the supplies on hand.

g. Wages of $5,600 earned by employees during November were unpaid and unrecorded at November 30, the next payroll date will be December 5 of the next fiscal years.

Required

For each of the transaction above indicate the amount and the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. (Enter negative amount with a minus sign)

Balance sheet Income Statement

Transaction Assets Liabilities Stockholders Revenues Expenses Net Income

Equity

Answer 1

Q.14

Answers:

a. As service was rendered but not recorded there is less revenue recorded in the current year, hence when adjustment entry is made Income statement revenue will be increased by $3,300 and corresponding increase in asset side of the balance sheet "Accounts receivable " $3,300.

b.The advance amount of advertisement expense paid $ 550 (2200/12*3).By making the adjustment entry Advertisement expense already booked in October for the full amount of $2,200 will be reduced in the income statement by $550 and Prepaid Advertisement expense paid in the asset side of the balance sheet will be increased by $550.

c.Accrued interest for the months of October and November on the loan is $5500 (Annual interest 300000*11% =33000, divided by 4 quarters 33000/4=8250, two months due in a quarter 8250/3*2=5500) By adjustment entry the interest payment expense in the income statement will increase by $5,500 and the Interest payable account in the liability side of balance sheet will increase by $ 5,500.

d.On November 30 when accounts are closed out of the Unearned storage revenue one month becomes earned hence it must be transferred to current year income and will be increase revenue in the income statement by $750 and the unearned revenue balance in the Balance sheet will be reduced by $750.

e.When the depreciation entry is passed depreciation expense in the income statement will increase by $18,000 and the value of the asset in the balance sheet will be decreased by $18,000.

f. The balance of boat repair supplies in hand during year-end $15,600 will be disclosed as closing stock in the income statement and balance sheet. The amount of supplies consumed during the year is treated as an expense in the income statement for $ 48,500 (18900+45200-15600).

g. Wages due to employees will be recorded as expenses due for current year and amount will be set aside as payable in the balance sheet hence by adjustment entry the salary expense in the income statement will be increased by $5,600 and salary payable in the liability side of the balance sheet will be increased by $5,600.