Question

The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2018, trial balances contained the following account information: Cr. Dr. Supplies Prepaid insurance Salaries and wages payable Deferred rent revenue Nov. 30 Dr. 3,000 7,500 17,500 5,000 Dec. 31 Cr. 4,500 5,250 16,500 2,500 The following information also is known: a. The December income statement reported $3,500 in supplies expense. b. No insurance payments were made in December. c. $17,500 was paid to employees during December for salaries and wages. d. On November 1, 2018, a tenant paid Righter $7,500 in advance rent for the period November through January. Deferred rent revenue was credited. Required: 1. Using the above information for December, complete the T-accounts below. The beginning balances should be the balances as of November 30. 2. Using the above information, prepare the adjusting entries Righter recorded for the month of December.

Answer 1

Solution:

1.)

	Supplies					Prepaid Insurance
Beg. Bal.	$3,000				Beg. Bal.	$7,500
	$4,500	$3,500	a.				$2,250	b.
End. Bal.	$4,000				End. Bal.	$5,250
	Salaries	Payable				Defferred Rent	Revenue
Beg. Bal		$17,500			Beg. Bal.		$5,000
c.	$17,500	$16,500			d.	$2,500
End. Bal.		$16,500			End. Bal		$2,500

* $7500/ 3 months = $2500 per month rent

Adjusting Journal Entry:

No.	Date	Accounts Title and Explanation	Debit ($)	Credit ($)
1	31 Dec.	Insurance Expenses	2,250
		Prepaid insurance		2250
		( To record insurance expenses)
2.	31 Dec.	Salaries Expenses	16,500
		Salaries Payable		16,500
		(To record accured salaries expenses)
3.	31 Dec.	Defferred rent revenue	2500
		Rent revenue		2500
		(To record rent revenue from unearned rent)

Solution 2.)

Income Statement

Service revenue		$463,000
Operating expenses:
Insurance expenses	$3,500
Supplies expenses	$39,200
Interest expenses	$15,000
Miscellaneous expenses	$36,900
Salaries	$195,000
Rent	$24,000
Depreciation	$14,000
Total operating expenses		-$327,600
Operating income		$135,400
Other Expenses:
Interest expenses		-$15,000
Net income		$120,400

* Service revenue = Cash collected from customer - Accounts receivable, beginning + Accounts receivable, ending

= $470,000 - $36,000 + $29,000

= $463,000

Insurance expenses =Cash paid for insurance + Prepaid insurance, beginning - Prepaid Insurance, ending

= $7,000 + $0 - $3,500

= $3,500

Supplies expenses = Supplies, beginning + Supplies purchased - Supplies ending

= $2,500 + $40,000 - $3,300

= $39,200

Interest Expenses = $25,000 × 6%

= $15,000

Miscellaneous expenses = Cash paid for miscellaneous expenses - Accrued miscellaneous expenses, beginning + Accrued miscellaneous expenses, ending

= $35,000 - $3,900 + $5,800

= $36,900

Solution 3.)

Revenue ($550,000)+($73,000 -$65,000)	$558,000
Expenses:
Salaries expenses	-$305,000
Utilities expenses ($48,000)-($7,000 - $3,500)	-$44,500
Advertising expenses	-$25,000
Net income	$183,500

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