Question

Brokeback Towing Company is at the end of its accounting year, December 31, 2016. The following data that must be considered were developed from the company's records and related documents: a. On July 1, 2015, a two-year insurance premium on equipment in the amount of $408 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1. b. At the end of 2015, the unadjusted balance in the Supplies account was $1,000. A physical count of supplies on December 31, 2015, indicated supplies costing $220 were still on hand On December 31, 2015, YY's Garage completed repairs on one of Brokeback's trucks at a cost of $720. The amount is not yet recorded. It will be paid during January 2016 d. On December 31, 2015, the company completed a contract for an out of state company for $7 550 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction. e. On July 1, 2015, the company purchased a new hauling van. Depreciation for July-December 2015 estimated to total $2,350, has not been recorded As of December 31, the company owes interest of $420 on a bank loan taken out on October 1, 2016. The interest will be paid when the loan is repaid on September 30, 2016. No interest has been recorded yet. 9. Assume the income after the preceding adjustments but before income taxes was $22.000. The company's federal income tax rate is 25% Compute and record income tax expense. Required: 1. Give the adjusting journal entry required for each item at December 31, 2015. (If no entry is required transaction event, select "No Journal Entry Required in the first account field.) View transaction fist View journal entry worksheet No Transaction General Journal Debit Credit Insurance Expense 1 Prepaid Insurance 2 Supplies Expense Supplies 1 3 Repairs and Maintenance research paper 10001 - 110 mes W. To vam

Answer 1

Solution 1:

Brokeback Towing Company
Adjusting Journal Entries
Date	Particulars	Debit	Credit
a.	Insurance Expense Dr ($408*6 months/24 months)	$102
	To Prepaid Insurance		$102
b.	Supplies expense Dr ($1000- $220)	$780
	To Supplies		$780
c.	Repair Expense Dr	$720
	To Expenses payable		$720
d.	Accounts Receivable	$7,550
	To Sales Revenue		$7,550
e.	Depreciation expense Dr	$2,350
	To Accumulated Depreciation		$2,350
f.	Interest expense Dr ($420*3/12)	$105
	To Interest Payable		$105
g.	Income tax expense Dr ($22000*25%)	$5,500
	To Income tax payable		$5,500

Solution 2:

Total of adjustments = $7550 - 102-780-720-2350-105 = $3,493 Income

Income will be understated by = $3493 - tax on $3493 = $3493 - ($3493*25%) = $2,620