Question

A review of the ledger of Larkspur, Inc. at December 31 produces the following data for the preparation of annual adjusting entries: 1. Salaries and Wages Payable, $0. There are 8 salaried employees. 5 employees receive a salary of $1,250 each per week, and 3 employees earn $680 each per week. Employees do not work weekends. All employees worked two days after the last pay period and before December 31. Unearned Rent Revenue, $439,120. The company began leasing condos in its new building on November 1. Each tenant has to make a $4,900 security deposit that is not refundable until occupancy is ended. At December 31, the company had the following rental contracts that were paid in full for the entire term of the lease: 2. Date Term (in months) 6 Number of Leases 6 Monthly Rent $4,050 $10,180 Nov. 1 Dec. 1 6 4 3. Prepaid Insurance, $14,280. This balance consists of payments on two policies. The terms of the policies are as follows: Policy A650 B974 Effective Date May 1 Oct. 1 Amount $6,960 7,320 Number of Months Coverage 12 24 4. Notes Payable, $84,000. This balance consists of a one year, 7% note that is dated June 1. No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. Larkspur is preparing for a meeting with potential investors. What is the net effect of the adjusting entries on net income? Net effect of adjusting entries is to increase net income by $

Answer 1

Debit Credit 3316 Alo Accounts titles and explcncution 3 Saksies Outstanding scaluries Note-1 [Being sukurts due but not Puid] A. 2 & Profit & lass Suknies [Being balance of Suksies Account treinsfered to profit 3316 3316 3316 and less Account] 3 Insurance expenses Prepaid Insurance alote-2/ Being insusunce expenses of Cursent your recorded] 6,470 6,470 6,470 6970 4 Profit a loss Insyacerice expenses [Being insipunce expenses recosded in Profit & less Account]

No Accounts titles COLPlancetion Debit Cardit 49,0us 49gou (5) Cash A Security deposits Note 3 detyonable [Being security deposits deceived ] (6) Uneaaned sent revenue Rent [Being balance of Note 4 uneuaned sent devenue seduced by amount of Current year sent] 89.320 89,320 (7) Rent 89,320 84324 Profit & leass A [Being beckence of sent account treinsfered to Pufit & less Account 3,43 8) Interest expenses 3,430 Interest Payable Note- Being interest Calculated of notes Payable Account) 612 817 92

Face Date 3,40 (9) Profit and less Interest expenses [Being interest elenses recorded in Profit & loss Account 3430
Note 1 Salaries

A)No.of employee 5

1250/5*2=500 is 2 day salary per employee

So,500*5=2500

B)No.of employee 3

680/5*2=272 is a 2 day salary per employee

So,272*3=816

Total outstanding salary 3316

Note 2 Insurance

Policy A650

6,960/12 months*8 months=4640

Policy B974

7320/12 months*3 months=1830

So,total 6,470

Note 3 security deposit

4,900*no.of leases

4,900*10=49000

Note 4 Rent

Nov 1

4,050*2 months*6 leases=48,600

Dec 1

10,180*4 leases=49,720

So,total 89,320

Note 5 Interest expenses

84,000/12 months *7 months*7%=3,430

Net effect of adjusting entry will increased net income by 76,104