Question

The following accounts appeared in the December 31 unadjusted trial balance of the Majesty Theatre:

	Debit	Credit
Equipment	$960,000
Accumulated depreciation-Equipment		120,000
Notes payable		186,000
Sales revenue		750,000
Advertising expense	62,000
Salaries and wages expense	80,000
Interest expense	9,000

Required:

1. From the account balances above and the information that follows, prepare the annual adjusting entries necessary on December 31:

1. The equipment has an estimated life of 16 years and a residual value of $40,000. (Use the straight-line method.)
2. The note payable is a 12-month note given to the bank on October 1 and bearing interest at 10%.
3. In December, 2,000 coupon admission books were sold at $25 each; they can be used for admission any time after January 1.
4. Of the Advertising Expense balance, $1,100 is paid in advance.
5. Salaries accrued but unpaid are $11,800.

2. What amounts should be shown for each of the following on the income statement for the year?

1. Interest expense
2. Sales revenue
3. Advertising expense
4. Salaries and wages expense

Answer 1

1
Date	Accounts Titles and Explanation	Debit	Credit
Dec 31	Depreciation expense	$57,500
	Accumulated depreciation-Equipment		$57,500
	($960,000 - $40,000)/16 years
Dec 31	Interest expense	$4,650
	Interest payable		$4,650
	($186,000 x 10% x 3/12)
Dec 31	Sales revenue	$50,000
	Unearned Sales revenue		$50,000
	(2,000 x $25)
Dec 31	Advance Advertising	$1,100
	Advertising expense		$1,100
Dec 31	Salaries and wages expense	$11,800
	Accrued Salaries and wages		$11,800
		Unadjusted		Adjustment		Adjusted
		Debit	Credit	Debit	Credit	Debit	Credit
	Equipment	$960,000				$960,000
	Accumulated depreciation-Equipment		$120,000		$57,500		$177,500
	Notes payable		$186,000				$186,000
	Sales revenue		$750,000	$50,000			$700,000
	Advertising expense	$62,000			$1,100	$60,900
	Salaries and wages expense	$80,000		$11,800		$91,800
	Interest expense	$9,000		$4,650		$13,650
	Depreciation expense			$57,500		$57,500
	Interest payable				$4,650		$4,650
	Unearned Sales revenue				$50,000		$50,000
	Advance Advertising			$1,100		$1,100
	Accrued Salaries and wages				$11,800		$11,800
2
	Interest expense	$13,650
	Sales revenue	$700,000
	Advertising expense	$60,900
	Salaries and wages expense	$91,800