Question

P3-1: The following information for Drake Company, which adjusts and closes its accounts every December 31, is available for 2016: 1. Salaries accrued but unpaid total $2,840 on December 31,2016. 2. The $247 December utility bill arrived on December 31 and has not been paid or recorded. 3. Buildings with a cost of $78,000, 25-year life, and $9,000 residual value are to be depreciated; equipment with a cost of $44,000, 8-year life, and $2,000 residua value is also to be depreciated. The straight-line method is to be used. 4. A count of supplies indicates that the Store 5. The company hold sa$6,000,12% (annual rate), 6-month note receivable dated 6, Bad debts expense is estimated to be 1% of annual sales. Sales for 2016 total Supplies account should be reduced by $128 and the Office Supplies account reduced by $397 for supplies used during the year. September 30, 2016, from a customer. The interest is to be collected on the maturity date. $65,000 7. An analysis of the company insurance policies indicates that the Prepaid 8. A review of travel expense reports indicates that $310 has been paid for airfare Insurance account is to be reduced for $528 of expired insurance. for a salesperson (and recorded as Travel Expenses), but has not yet been used. 9. The income tax rate is 30% on current income and will be paid in the first quarter of 2017. The pretax income of the company before adjustments is $18,270. Required: lournalize the necessary adjusting entries for Drake at the end of 2016. Show supporting calculations in your journal entry explanations.

Answer 1

P3-1 Journal entries will be as follows:

S.NO	Date	Particulars	Debit	Credit
1	31.12.2016	Salaries	2840
		Salaries Payable		2840
		(To record Salary accrued but unpaid)
2	31.12.2016	Utility Expenses	247
		Accounts Payable		247
		(To record Utility Bill)
3	31.12.2016	Depreciation	2760
		Accumulated Depreciation		2760
		(To record Depreciation on Building (78000-9000)/25
	31.12.2016	Depreciation	5250
		Accumulated Depreciation		5250
		(To record Depreciation on Equipment (44000-2000)/8
4	31.12.2016	Store Supplies Expense	128
		Supplies		128
		(To record reduction in store supply)
	31.12.2016	Office Supplies Expense	397
		Supplies		397
		(To record reduction in office supply)
5	31.12.2016	Interest Receivable	180
		Interest Revenue		180
		(To record interest accrue (6000*12/100)*3/12 from Oct to Dec)
6	31.12.2016	Bad Debt	650
		Accounts Receivable		650
		(To record Bad Debt on 65000 @ 1% i.e 65000*1/100)
7	31.12.2016	Insurance Expenses	528
		Prepaid Insurance		528
		(To record expired insurance)
8	31.12.2016	Prepaid Expenses	310
		Travel Expenses		310
		(To record travel expenses not yet used)
9	31.12.2016	Income Tax Expense	5481
		Income Tax Payable		5481
		(To record income tax payable 18270*30/100)

P3-2 Journal Entries will be as under:

S.NO	Date	Particulars	Debit	Credit
1	31.12.2016	Property Tax Expenses	2300
		Property Tax Payable		2300
		(To record Property Taxes for 2016 not paid & recorded)
2	31.12.2016	Utility Expenses	302
		Accounts Payable		302
		(To record Utility bill)
3	31.12.2016	Salaries	927
		Salaries Payable		927
		(To record Salary accrued but unpaid)
4	31.12.2016	Travel Expenses	787
		Advance to Employee		787
		(To record travel expenses incurred)
5	31.12.2016	Office Supplies	45
		Supplies		45
		(To record difference in office supply)
6	31.12.2016	Depreciation	4600
		Accumulated Depreciation		4600
		(To record Depreciation on Building (100000-8000)/20
	31.12.2016	Depreciation	6300
		Accumulated Depreciation		6300
		(To record Depreciation on Equipment (65000-2000)/10
7	31.12.2016	Income Tax Expense	8324.70
		Income Tax Payable		8324.7
		(To record income tax payable 27749*30/100)