Question

Chapter 3, P 2.

P2. On November 30, the end of the current fiscal year, the following information is available to assist Allerton Corporation's accountants in making adjusting entries: a. Allerton's SUpplies account shows a beginning balance of $2,350. Purchases during the year were $4,218. The end-of-year inventory reveals suppleis on hand of $1,397. b. The Prepaid Insurance account shows the following on November 30: Beginning balance $4,270 July 1 4,200 October 1 7,272 The beginning balance represents the unexpired portion of a one-year policy purchased in September of the previous year. The July 1 entry represents a new one-year policy, and the October 1 entry represents additional coverage in the form of a three-year policy. c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Allerton purchased before the current year: Account Cost Annual Depreciation Buildings $298,000 $16,000 Equipment 374,000 40,000 d. On October 1, the company completed negotations with a client and accepted an advance of the $18,600 was credited to Unearned Services Revenue. e. The company caluclated that, as of November 30, it had earned $7,000 on an $11,000 contract that would be completed and billed in January. f. Among the liabilities of the company is a note payable in the amount of $300,000. On November 30, the accrued interest on this note amounted to $18,000. g. On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular employees their weekly wages of $15,000. Required: open t-accounts for each position listed above

Answer 1

a) Supplies Expense Supplies Exp. $0 Beg. Bal. Purchases Nov. 30 Supplies $2,350 $5,171 $4,218 $1,397 Beg. Bal. Supplies Nov. 30 $5,171 $5,171 Workings: Beginning balance Add: Purchases Less: Ending balance Supplies used $2,350 $4,218 $1,397 $5,171 --> It is the expense to be recognized b) Insurance Exp. Prepaid Insurance $4,270 $6,424 $4,200 $7,272 $9,318 Beg. Bal. Jul. 1 Oct. 1 Nov. 30 Insurance Expense $0 $6,424 Beg. Bal. Prepaid Ins. Nov. 30 $6,424 Workings:

$4,270 Beginning balance Add: Purchased on Jul. 1 Add: Purchased on Oct. 1 $4,200 $7,272 Less: Expired out of beginning bal. Less: Expired out of Jul. 1's purchase Less: Expired out of Oct. 1's purchase Total insurance coverage expired Ending balance $4,270 $1,750 $404 $11,472 $15,742 [Fully expired in September of current year itself] [$4200 x 5/12 --> 5 months' insurance expired out of 1 year's coverage] [$7272 x 2/36 --> 2 months' insurance expired out of 3 years' coverage] -$6,424 $9,318 --> It is the expense to be recognized Depreciation Expense $0 Accumulated Depreciation-Buildings $0 Beg. Bal. $16,000 Dep. Expense $16,000 Nov. 30 Beg. Bal. For Building For Equip. Nov. 30 $16,000 $40,000 $56,000 $0 Accumulated Depreciation-Equipment Beg. Bal. $40,000 Dep. Expense $40,000 Nov. 30 NOTE: No calculations are required as direct figures were given for depreciation expenses.

d) No adjustment entry can be recorded for this transaction because information related to earned portion out of total customer advance is not given. Beg. Bal. Service Rev. Nov. 30 Accounts Receivable $0 $7,000 $7,000 Service Revenue $0 Beg. Bal. $7,000 Accts. Receivable $7,000 Nov. 30 NOTE: Total contract value is irrelavant for recording adjusting entry because earned portion of total contract value is relavant. f) Beg. Bal. Int. Payable Nov. 30 Interest Expense $0 $18,000 $18,000 Interest Payable $0 Beg. Bal. $18,000 Interest Expense $18,000 Nov. 30 Salaries and Wages Expense Beg. Bal. $0 S&W Payabl $10,000 Beg. Bal. $10,000 Salaries and Wages Payable $0 Beg. Bal. $10,000 S&W Expense $10,000 Beg. Bal. ($15,000 x 4/6] NOTE: S&W stands for Salaries and Wages. For the week ended Nov. 30, 4 days' wages should be accrued out of 6 days' weekly wages ending by Dec. 2.