Question

Assume the following information for company SDA on 31st December 2018, before
the preparation of the adjusted trial-balance:
Machinery (€) 38,000
Wages payable 1,300
Accumulated depreciation: machinery 6,000
Bank deposits 12,000
Unearned revenue 2,100
Prepaid insurance 3,600
Accounts receivable 6,500
Advances from customers 1,800
Revenue 13,000
Inventory 3,000
Long-term loans 16,000
Accounts payable 4,500
Retained earnings 13,000
Rent expense 9,600
Share Capital 15,000

Required

Prepare adjusting entries by taking into consideration the following
information:
a. The accrued interest on long-term loans for the fiscal year 2018 is calculated at an
interest rate of 6% on the balance of the loan at this date.
b. During December, unearned revenues of €1,500 were earned.
c. Depreciation charges on machinery for fiscal year 2018 amount to €3,160.
d. The accrued interest on deposits in December is €170.
e. On 10th October 2018, SDA prepaid €4,800 for six months’ rent and debited the
account Rent expense for the total amount of €4,800.
f. An amount of €600 was recognized as revenue of fiscal year 2018. This amount
corresponds to services that will be provided in the next fiscal year 2019.
g. Prepaid insurance expired at 31st December 2018.

Record the closing journal entries for the determination of the firm’s net
profit or loss assuming that the firm’s tax rate is 20% and the annual result of its
operations (profit or loss) is carried forward

Prepare the post-closing trial balance.
Provide the required calculations. Assume that the fiscal year end date of SDA is on
31st December 2018.

Answer 1

1

Journal Entry

Particulars				Debit	Credit
1	Interest Expenses A/C   Dr.			960
		To Accrued Interest			960
	( Being Interest Accrued on Loans)
2	Unearned Revenue A/C Dr			1500
		To Revenue			1500
	( Being Revenue Earned )
3	Depreciation A/C Dr.			3160
		To Accumulated Depreciation			3160
	( Being Depreciation Charged on Machinery )
4	Accrued Interest A/C Dr.			170
		To Interest			170
	( Being Interest Accrued on Bank Deposit )
5	Prepaid Rent A/C Dr			4800
		To Rent			4800
	( Being Rent Transferred to Prepaid Rent)
6	Revenue A/C Dr.			600
		To Unearned Revenue			600
	( Being Revenue Transfer to Unearned Revenue because service not performed in this year )
7	Insurance Expenses A/C Dr.			3600
		To Prepaid Insurance			3600
	( Being Prepaid Insurance expired )
8	Income Tax A/C Dr.			310
		To Income Tax Payable			310
	( Being Income Tax Payable )

2.

Income Statement as on 31st December 2018 of SDA
Revenue	13900
Interest on Bank Deposits	170
Total Revenue	14070
Less:
Rent expenses	4800
Interest on long term loan	960
Depreciation	3160
Insurance Expenses	3600
Net Profit ( Before Tax )	1550
Current Tax	310
Net Profit ( After Tax )	1240

3.

Adjusted Trial Balance as on 31st december 2019
Account Title	Credit	Debit
Wages Payable	1300
Accumulated Depreciation	9160
Unearned Revenue	1200
Advances From Customer	1800
long term loans	16000
Accounts Payable	4500
Retained Earning	14240
Share Capital	15000
Accrued Interest	960
Income Tax Payable	310
Machinery		38000
Bank Deposit		12000
Account Receivable		6500
Accrued Interest		170
Prepaid Rent		4800
Inventory		3000
Total	64470	64470