Question

The following trial balance was taken from the books of ABC Corporation on December 31, 2020 before any adjustments were made. Account Debit Credit Cash $ 9,000 Accounts Receivable 40,000 Notes Receivable 10,000 Allowance for Doubtful Accounts $ 1,800 Inventory 34,000 Prepaid Insurance 4,800 Equipment 100,000 Accumulated Depreciation--Equip. 15,000 Accounts Payable 10,800 Common Stock 46,000 Retained Earnings 55,000 Sales Revenue 260,000 Cost of Goods Sold 126,000 Salaries and Wages Expense 50,000 Prepaid Rent 12,000 Dividends 2,800 Totals $388,600 $388,600 At year end, the following items have not yet been recorded. a. Insurance expired during the year, $2,000. b. Estimated bad debts, 1% of gross sales. c. Depreciation on equipment, 10% per year on original cost. d. Interest at 6% is receivable on the note for 6 months. e. 1-year rent was paid in advance at September 1, 2020. f. Accrued salaries and wages at December 31, $5,800. Required: (a) Prepare the necessary adjusting entries. (b)Prepare the necessary closing entries.

Answer 1

Credit (a) Adjusting Entries Account Titele and Explanation (a) Insurance expense Prepaid Insurance Debit $2,000 $2,000 (b) $2,600 Bad debt expense Allowance for doubtful accounts ($260000*1%) $2,600 (c) $10,000 Depreciation expense Accumulated Depreciation - Equipment $10,000 (d) $300 Interest Receivable Interest Revenue ($10,000*6%*1/2) $300 (e) $3,000 Rent expense Prepaid Rent $3,000 (f) $5,800 Salaries expense Salaries and wages payable $5,800 (b) Closing Entries Dec-31 Sales Revenue Interest Revenue Income Summary $260,000 $300 $260,300 $196,800 Dec-31 Income Summary Cost of Goods Sold Salaries and wages expenses Insurance expense Depreciation expense Rent expense $126,000 $55,800 $2,000 $10,000 $3,000 $63,500 Dec-31 Income Summary Retained earnings $63,500 $2,800 Dec-31 Retained earnings Dividends paid $2,800

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