Question

P4-5 (Algo) Determining Financial Statement Effects of Adjusting Entries L04-1 [The following information applies to the questions displayed below.) S. Miller Towing Company provides hauling and delivery services for other businesses. It is at the end of its accounting year ending December 31. The following data that must be considered were developed from the company's records and related documents: a. On January 1 of the current year, the company purchased a new hauling van at a cash cost of $24,900. Depreciation estimated at $2,800 for the year has not been recorded for the current year. b. During the current year, office supplies amounting to $940 were purchased for cash and debited in full to Supplies. At the end of last year, the count of supplies remaining on hand was $260. The inventory of supplies counted on hand at the end of the current year was $360. c. On December 31 of the current year, Lanie's Garage completed repairs on one of S. Miller Towing's trucks at a cost of $1,110; the amount is not yet recorded by S. Miller Towing and by agreement will be paid during January of next year. d. On December 31 of the current year, property taxes on land owned during the current year were estimated at $1,310. The taxes have not been recorded and will be paid in the next year when billed. e. On December 31 of the current year, the company completed towing service for an out-of-state company for $7,500 payable by the customer within 30 days. No cash has been collected, and no journal entry has been made for this transaction. f. On July 1 of the current year, a three-year insurance premium on equipment in the amount of $720 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year. g. On October 1 of the current year, the company borrowed $9,600 from the local bank on a one-year, 15 percent note payable. The principal plus interest is payable at the end of 12 months.

Answer 1

Following are the adjustment journal entries to be passed:

Journal Sl. No. Date a b C d ID Description Post Ref. Debit Credit Depreciation Expense 2800 Accumulated Depreciation 2800 Supplies Expenses 840 Supplies 840 Repairs Expenses 1110 Accounts Payable 1110 Property Tax Expenses 1310 Taxes Payable 1310 Accounts Receivable 7500 Service Revenues 7500 Insurance Expenses 120 Prepaid Insurance 120 (720/3=240/2=120) Interest Expense 360 Loan Payable 360 (9600*15%*3/12) Income tax Expenses 9888 Taxes Payable 9888 (32000 - 2800 - 840 - 1110 - 1310 + 7500 - 120 - 360) *30% f 8 h

Transactions a b с Balance Sheet Income Statement Asset Liabilities Equity Revenue Expenses Net Income -2800 -2800 2800 -2800 -840 -840 840 -8401 1110 -11101 1110 -1110 1310 - 1310 1310 -13101 7500 7500 7500 7500 -120 - 120 120 - 120 360 -3601 360 -360 d e f h 9888 -9888 9888 -9888 (change in equity is due to change in net income which is finally adjusted to equity)

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