Question

Activity #3 Part 1 Required: Analyze the transactions and prepare the journal entries 1. The company borrowed $8,500 on February 1. It is a 9-month note with a 6% interest rate. The company prepares financial statements on a quarterly basis. Prepare the necessary adjusting entry, 2. Employees are paid every other Monday for the previous 2 week pay period. January 31 is on a Saturday. The last pay day was Monday, January 26 for the 2- week period of January 12-25. Each employee works 8 hours a day, Monday through Friday and earns $22 per hout. The company has 25 employees. The company prepares financial statements on a monthly basis. Prepare the necessary adjusting entry Instructions for Transaction Analysis and Journal Entries and Alphabetical List of Specific Account Names Step 1: Analyze the transaction Analyze each transaction and fill in the table below. Transaction Analysis Table 0 5:43 acer esc

Answer 1

1. Assuming the quarter ends on March (Jan-March) Interest for 2 months will be accrued. Interest shall be 8500*6&*2/12= $85. Journal entry for accruing the expense shall be:

• Interest expense 85
• Accrued interest 85
• (Being interest accrued)

2. The employees will be paid for 12Jan- 16 Jan (Mon-Fri) and then 19-Jan to 23 Jan(Mon-Fri). Total 10 days. Total salary would be= 10 days*8 Hours*$22/Hour*25 employees= $44000. Now since Jan 31 was a saturday and payment is made on Monday (in february). an expense will be accrued at the end of January 31.

• Salaries expense 44000
• Accrued salaries 44000
• (Being salaries accrued)

Adjusting entries for accrued expenses are needed in the light of accrual concept. An expense is incurred irrespective of the fact whether they are paid or not. Expense needs to be recorded in the period in which they are inccurred. This will reflect the true profitability position of a company