Question

The work sheet and trial balance of Santos Corporation is reproduced on the following page. The information below is relevant to the preparation of adjusting entries needed to both properly match revenues and expenses for the period and reflect the proper balances in the real and nominal accounts.

Instructions

As the accountant for Santos, you are to prepare adjusting entries based on the following data, entering the adjustments on the work sheet and completing the additional columns with respect to the income statement and statement of financial position. Carefully key your adjustments and label all items. Round all calculations to the nearest dollar.

1.     After an aging of accounts receivable, it was determined that three percent of the accounts will become uncollectible.

2.     Depreciation is calculated using the straight-line method, with an eight-year life and $1,000 residual (salvage) value.

3.     Salesmen are paid commissions of 11% of sales. Commissions on sales for the last week of December have not been paid.

4.     The note was issued on October 1, 2013, with interest at 8%, due Feb. 1, 2014.

5.     A physical inventory of supplies indicated $280 of supplies currently on hand.

6.     Provisions of the company’s lease contract specify rent payments must be made one month in advance, with monthly payments of $900/mo. This provision has been complied with as of Dec. 31, 2013.

Santos Corporation

Work Sheet

Year ended December 31, 2013

                                             Trial Balance                      Adjustments                     Income Statement                 State of fin position

Accounts                              Dr.                  Cr.               Dr.                  Cr.                Dr.                Cr.                 Dr.                 Cr.  

Cash                                       5,400

Marketable Securities            4,050

Accounts Receivable           40,000

Allow. for D. A.                                              420

Inventory                              16,800

Supplies                                 1,040

Equipment                            49,000

Accum. Depr.–Equip.                                 9,500

Accounts Payable                                      4,400

Notes Payable                                           4,250

Common Shares                                      40,000

Retained Earnings                                   25,340

Cost of Goods Sold         238,520

Office Salaries                     20,800

Sales Commissions             29,000

Rent Expense                        7,200

Misc. Expense                       2,200

Sales                                                      330,100

     Totals                            414,010       414,010

Answer 1

Adjusting Entries:-

Sr. No.	Particulars	Debit	Credit
1	Bad debt Expense (40000 * 3%)	1200
	Allowance for doubtful debts		1200
2	Depreciation Expense (49,000 - 1,000)/8	6000
	Accumulated Depreciation - Equipment		6000
3	Sales Commisions (330100 * 11%) - 29000	7311
	Sales Commissions Payable		7311
4	Interest Expense (4250*8% *3/12)	85
	Interest Payable		85
5	Supplies Expense (1040 - 280)	760
	Supplies		760
6	Prepaid Rent	800
	Rent Expense		800

Trial Balance Adjustments Income St. Balance Sheet

Particulars	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Cash	5400						5400
Marketable Securities	4050						4050
Accounts Receivable	40000						40000
Allow. for D. A.		420		(1)1200				1620
Bad Debt Expense			(1)1200		1200
Inventory	16800						16800
Supplies	1040			(5) 760			280
Supplies Expense			(5) 760		760
Equipment	49000						49000
Accum. Depr.–Equip.		9500		(2) 6000				15500
Depreciation Exps			(2) 6000		6000
Accounts Payable		4400						4400
Notes Payable		4250						4250
Common Shares		40000						40000
Retained Earnings		25340						25340
COGS	238520				238520
Office Salaries	20800				20800
Sales Commissions	29000		(3) 7311		36311
Sales Comm Payable				(3) 7311				7311
Rent Expense	7200			(6) 800	6400
Prepaid Rent			(6) 800				800
Misc. Expense	2200				2200
Sales						330100
Interest Expense			(4) 85		85
Interest Payable				(4) 85				85
Net Income (Balance)					17,824			17,824
Total					330,100	330,100	116,330	116,330