Question

The following transactions and events for Star Corp. are being reviewed for possible adjusting entries at December 31, 2020 (fiscal year end is Dec 31).

1. Equipment used in operations cost $420,000; it was purchased on July 1, 2017. It has an estimated useful life of 12 years. Straight-line depreciation is used.
2. At the beginning of 2020, supplies amounted to $600. During 2020, supplies of $8,800 were purchased; this amount was debited to Supplies Expense. An inventory of supplies at the end of 2020 showed $400 still available. However, the January 1 balance of $600 is still recorded in the supplies account.
3. On July 1, 2020, the company paid a three-year insurance premium of $2,160; this amount was debited to Prepaid Insurance.
4. On August 1, 2020, the company borrowed $120,000 cash from Shark Bank. The loan was for 12 months at 9% interest payable at maturity date.
5. On December 31, 2020, salaries earned by employees but not yet paid (or recorded) was $18,000.
6. On September 1, 2020, the company loaned $60,000 cash to another company. The loan was at 10% per year and was due in six months; interest is payable at maturity. Cash was credited for $60,000, and Note Receivable was debited on September 1 for the same amount.
7. On January 1, 2020, Supplies amounted to $200. During 2020, supplies that cost $4,000 were purchased and debited to Supplies. At the end of 2020, a physical inventory count revealed that supplies still available were $800.
8. At the end of 2020, property taxes for 2020 of $59,000 were assessed on property owned by the company. The taxes are due no later than February 1, 2021. The taxes have not been recorded on the books because payment has not yet been made.
9. The company borrowed $120,000 cash from the bank on December 1, 2020. A 60-day note payable was signed at 9% interest payable on maturity date. On December 1, 2020, Cash was debited and Note Payable credited for $120,000.
10. On July 1, 2020, the company paid the city a $1,000 license fee for the next 12 months. On that date, Cash was credited and License Expense debited for $1,000.
11. The company owns three SUVs used by its executives. A six-month maintenance contract on them was signed on October 1, 2020, whereby a local garage agreed to do “all the required maintenance.” Payment was made for the following six months in advance; specifically, on October 1, 2020, Cash was credited and Repair Expense was debited for $9,600.

Required: Prepare the adjusting entries that are necessary, if any, on December 31, 2020, for each item 1 through 11.

Answer 1

H ILLI = Dollar Da - Debit record Equipment Cost = $420,000 Purchase date = 1 July 2017 life of equipment = 12 years Annual depreciation - Cast of equipment - Scral value life of equipment = $420000 - 0 Annual deforeciation - 35000 Adjusting entring Depreciation Ak To on 31 Dec, 2020 - R Equilement de 35.00 35000 - 60o Inventory at the end of 2020 = 400 (Actual balance) Balance of inventory of Jan 1 = $600 (not reconded) a) Supplies Ak - Dr. I Goo To Account payable ( Being Sekolies of Jam I is recorded) 6 Supplies on hand Area To Supplies the (Being the studies will appear ! on your balance sheet as a Current csod) 1000 100 .

360 in 360 insurance Insurance All de To Prepaid insurance Insurance expenses of corrent fiscal year (6 Montha) care transferred to expense Ak (insurance AJ $2160 Total insurance expenses - $2160 Annual Change of indunult = $120 (2160) 6 Months expenses of Content - $120 x 6 Month fiscal year 1 July - 31 Dec = $360 12 Mowly i) Loan - $ 120000 , Interest rate - 90% Date of loan tatron - 1 July 2020 Adjusting entery a) Interest Ak der 540 4500 To outstanding interest Ar (As ber Accural cessumption, Current year expenses are recorded whether it is baid or not) 5400 4500 Interest - 120000 x 9 x 5 = 4500

$18000 $18000 y Salorien Ak de . To Outstanding Salary the (Being as ber cost accural Cessumption, expenses core recorded in books whether it is said or not, 4 outstanding salary is shown in the Current liability = = = = = ui) Accured interest Ak – der . To Interest recened the | Accured interest core shown in the Asset side of beelance sheet under $2000 $2000 Current casset) Accused interest interest due not receined) - $60000 x 10 x $2000 v $800 $800 Supplies in hand te da To Gapoplies the I Sapplies in hand core shown under the Cuprent casset)

i) I vis) I I= = ix) Taxes i Da To outstanding the No Adjustment entry required bear because the camount of taxe is not yet duc. in Current year. = = = = = = = = Bosramed Amount = $ 120000 Interest rate – 9% Dute of borrowing = 1 Dec 2020 Interest due for 1 month at the end of Current focal year 900 $ 900 Interest te do & To outstanding interest Interest on borrowed camount is due but not paid for an 1 month) (Interest - $120000 x 9 x + 2)

$ 500 $ 500 Prepaid license fee Als de To Licente exp. Ac (Being Expense of next fiscal year care transferred to prepaid expense Care Ak) Prepaid license fee = $ 1000 x = $500 = = = = = = = = = = = $24800 учboo Prepaid repair (saintenance) Dr. To Repair the ( Being Maintenance expenses of core paid for 6 month from which only 3 Monty core related to Current year) Repair - $9600 * 3 Month 6 Monty =$4800