Question

The following independent events for New Age Theatre Ltd. during the year ended November 30, 2018, require a transaction journal entry or an adjusting journal entry, or both. The company adjusts its accounts annually.

1.		On June 1, 2017, the theatre purchased vehicles for $80,700 cash. The vehicles’ estimated useful life is five years and the company uses straight-line depreciation.
2.		The theatre has eight plays each season. This year’s season starts in October 2018 and ends in May 2019 (one play per month). Season tickets sell for $400. On October 1, 470 season tickets were sold for the 2018–2019 season. The theatre credited Unearned Revenue for the full amount received on October 1 and uses a Ticket Revenue account to record revenue earned from season tickets.
3.		Supplies on hand amounted to $1,750 at the beginning of the year. On February 16, additional Supplies were purchased for cash at a cost of $2,800. At the end of the year, a physical count showed that supplies on hand amounted to $520.
4.		On June 1, 2018, the theatre borrowed $101,100 from the Bank of Montreal at an interest rate of 7%. The principal is to be repaid in one year. The interest is payable on the first day of each following month, and was last paid on November 1.
5.		The New Age Theatre rents a portion of its facilities for $540 a month to a local dance club that uses the space for rehearsals. On November 2, the dance club’s treasurer made a mistake and accidentally sent a cheque for only $200 for the November rent. (Hint: Use the Unearned Revenue account to record the rent received in advance.) The dance club’s treasurer promised to send a cheque in December for the balance when she returned from vacation. On December 4, the theatre received a $340 cheque for the balance owing from November.
6.		The total weekly payroll is $7,350, paid every Monday for employee salaries earned during a seven-day workweek running from Sunday to Saturday. Salaries were last paid (and recorded) on Monday, November 26, and will be paid next on Monday, December 3. November 30 falls on a Friday this year.
7.		Upon reviewing its income tax calculations on November 30, the theatre noted that an additional $1,280 of income tax was owed. This additional amount was paid on December 14.

a. Prepare the journal entry to record the original transaction for items 1, 2, 3, 4, and 5

b. Prepare the year-end adjusting entry required for items 1 through 7 on November 30

c.Record the subsequent cash transactions in December for (1) the interest paid on December 1 (item 4), (2) the cheque received on December 4 (item 5), (3) the payroll paid on December 3 (item 6), and (4) the income tax paid on December 14 (item 7)

Answer 1

Requirement a Journal (Original Transactions) Transaction Particulars Vehicles Cash (To record vehicles purchased for cash) (in $) Debit 80,700 (in $) Credit 80,700 1,88,000 Cash Unearned Revenue (470*400) (Cash from season tickets received in advance) 1,88,000 2,800 Supplies Cash (Additional supplies purchased for cash) 2,800 1,01,100 Cash Loan from Bank (Rent apportioned) 1,01,100 200 Cash Unearned Revenue (Cash received from tenant in advance)

Requirement b Journal (Adjusting Transactions) Transaction Particulars 1 Depreciation expense (80700/5) Accumulated Depreciation (To record depreciation for 1 year) (in $) Debit 16,140 (in $) Credit 16,140 23,500 Unearned Revenue (188000/8) Ticket Revenue (Ticket revenue for 1st play in the season) 23,500 4,030 Supplies expense (1750+2800-520) Supplies (Supplies consumed during the year) 4,030 90 Interest expense (101100*7%*1/12) Interest Payable (Interest accured for Nov month) 590 5 340 200 Rent Receivable Unearned Revenue Rent Revenue (Rent revenue for the month of November) 540 6,300 Salaries expense (7350*6/7) Salaries Payable (Salary payable from Nov 25 to Nov 30) 6,300 1,280 Income tax expense Income tax payable (Additional income tax payable) 1,280

Requirement c Journal (Subs CashTransactions) Transaction Particulars Dec-01 Interest Payable Cash (Interest paid) (in %) Debit 590 (in $) Credit 590 Dec-04 340 Cash Rent Receivable (Balance rent for Nov month received) 340 Dec-03 6,300 1,050 Salaries Payable Salaries expense (7350*1/7) Cash (Salary paid for 7 days on Dec 3) 7,350 Dec-14 1,280 Income tax payable Cash (Income tax paid) 1,280