Question

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below Account Title Cash Accounts receivable Supplies Inventory Note receivable Interest receivable Prepaid rent Prepaid insurance Office equipment Accumulated depreciation-office equipment Accounts payable Salaries and wages payable Note payable Interest payable Deferred revenue Common stock Retained earnings Sales revenue Interest revenue Cost of goods sold Salaries and wages expense Rent expense Depreciation expense Interest expense Supplies expense Insurance expense Advertising expense Totals Debits Credits 39,200 48,000 1,350 68,000 21,300 1,700 74,000 27,750 27,000 51,300 60,000 18,500 188,000 84,600 17,100 9,350 850 4,400 2,700 372,550 372,550 Information necessary to prepare the year-end adjusting entries appears below 1. Depreciation on the office equipment for the year is $9,250 2. Employee salaries and wages are paid twice a month, on the 22nd for salaries and wages earned from the 1st through the 15th, and on the 7th of the following month for salaries and wages earned from the 16th through the end of the month. Salaries and wages earned from December 16 through December 31, 2018, were $1,150 3. On October 1, 2018, Pastina borrowed $51,300 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years

Answer 1

Answers

• All workings form part of the answer
• Steps required before Closing Entries can be recorded:

>Step 1: Make the adjustments to Unadjusted balances given and find out adjusted Trial balance.

>Step 2: Prepare Income Statement for calculating Net Income (Loss)

>Record closing entries based on Income Statement.

• STEP 1: ADJUSTED TRIAL BALANCE, as asked [including Unadjusted balance and Adjustment entries effect]

	Unadjusted Balances [as given]		Effects of Adjustments		ADJUSTED TRIAL BALANCE
Accounts title	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$                                   39,200.00				$           39,200.00
Accounts receivables	$                                   48,000.00				$           48,000.00
Supplies	$                                     1,350.00			$               640.00 (6) [1350 – 710]	$                 710.00
Inventory	$                                   68,000.00				$           68,000.00
Notes receivables	$                                   21,300.00				$          21,300.00
Interest Receivables	$                                                  -		$           1,420.00 (4) [21300 x 8% x 10/12]		$             1,420.00
Prepaid Rent	$                                     1,700.00			$               850.00 (8) [Rent of Dec expired]	$                 850.00
Prepaid Insurance	$                                                  -		$                                        2,750.00 (5) [4400 x 15months/24months]		$             2,750.00
Office Equipment	$                                   74,000.00				$           74,000.00
Accumulated Depreciation Office Equipment		$                  27,750.00		$           9,250.00 (1)		$        37,000.00
Accounts Payable		$                  27,000.00				$        27,000.00
Salaries & Wages Payable		$                                  -		$           1,150.00 (2)		$          1,150.00
Notes Payable		$                  51,300.00				$        51,300.00
Interest Payable		$                                  -		$           1,539.00 (3) [51300 x 12% x 3m/12months]		$          1,539.00
Deferred revenue		$                                  -		$           1,380.00 (7)		$          1,380.00
Common Stock		$                  60,000.00				$        60,000.00
Retained earnings		$                  18,500.00				$        18,500.00
Sales revenue		$                188,000.00	$                                        1,380.00 (7)			$      186,620.00
Interest revenue		$                                  -		$           1,420.00 (4) [21300 x 8% x 10/12]		$          1,420.00
Cost of Goods Sold	$                                   84,600.00				$           84,600.00
Salaries & Wages expenses	$                                   17,100.00		$                                        1,150.00 (2)		$           18,250.00
Rent Expenses	$                                     9,350.00		$                                           850.00 (8) [Rent of Dec expired]		$           10,200.00
Depreciation expense	$                                                  -		$                                        9,250.00 (1)		$             9,250.00
Interest expense	$                                                  -		$                                        1,539.00 (3) [51300 x 12% x 3m/12months]		$             1,539.00
Supplies expenses	$                                         850.00		$                                           640.00 (6) [1350 – 710]		$             1,490.00
Insurance expenses	$                                     4,400.00			$           2,750.00 (5) [4400 x 15months/24months]	$             1,650.00
Advertising Expenses	$                                     2,700.00				$             2,700.00
TOTALs	$                                 372,550.00	$                372,550.00	$                                     18,837.00	$         18,837.00	$        385,909.00	$      385,909.00

• Step 2: Income Statement

Income Statement
Revenues:
Sales revenue	$        186,620.00
Interest revenue	$             1,420.00
Total revenues		$      188,040.00
Expenses:
Cost of Goods Sold	$           84,600.00
Salaries & Wages expenses	$           18,250.00
Rent Expenses	$           10,200.00
Depreciation expense	$             9,250.00
Interest expense	$             1,539.00
Supplies expenses	$             1,490.00
Insurance expenses	$             1,650.00
Advertising Expenses	$             2,700.00
Total Expenses		$      129,679.00
Net Income		$        58,361.00

• Requirement 5: CLOSING ENTRIES:

No.	Date	General Journal	Debit	Credit
1	31-Dec-18	Sales revenue	$                186,620.00
		Interest revenue	$                     1,420.00
		Income Statement		$                                   188,040.00
		(revenue accounts closed)
2	31-Dec-18	Income Statement	$                129,679.00
		Cost of Goods Sold		$                                     84,600.00
		Salaries & Wages expenses		$                                     18,250.00
		Rent Expenses		$                                     10,200.00
		Depreciation expense		$                                        9,250.00
		Interest expense		$                                        1,539.00
		Supplies expenses		$                                        1,490.00
		Insurance expenses		$                                        1,650.00
		Advertising Expenses		$                                        2,700.00
		(Expense account closed)
3	31-Dec-18	Income Statement	$                  58,361.00
		Retained earnings		$                                     58,361.00
		(Net Income balance of Income Summary closed)