Question

Millar Ltd has the following unadjusted trial balance at 31 December 2018. Account titles Debit Credit Cash Accounts receivable Supplies Prepaid insurance Equipment Accumulated depreciation - Equipment Other assets (non-current) Accounts pavable Share capital (3000 shares outstanding all year) Retained profit Service revenue Cost of Goods Sold 19 600 7 000 1 300 900 27 000 12 000 5 100 7 500 16 000 10 300 48 000 32 900 93 800 93 800 Data not yet recorded at 31 December 2018 include the following: A Depreciation expense for 2018 was S3000. B Insurance expired during 2018 was $450 C Wages earned by employees but not yet paid on 31 December 2018 was $2100. D The supplies count on 31 December 2018 reflected $800 remaining supplies on hand to be used in 2019. E Income tax expense (unpaid) was S3150. Required: 1 Record the 2018 adjusting entries. 2 Prepare an income statement and a fully classified balance sheet for 2018 to include the effects of the preceding five transactions.

Answer 1

Solution 1

Adjusting Entries on December 31, 2018

In the books of Millar Ltd.

Date	Particulars	Debit ($)	Credit ($)
A.	Depreciation Expense (Equipment)	3,000
	Accumulated Depreciation (Equipment)		3,000
	(To record depreciation on equipment)
B.	Insurance Expense	450
	Prepaid Insurance		450
	(To record insurance expired)
C.	Wages Expense	2,100
	Wages Payable or outstanding		2,100
	(To record outstanding wages expense)
D.	*Supplies Expense	500
	Office Supplies		500
	(To record supplies used)
E.	Income tax Expense	3,150
	Income tax Payable or outstanding		3,150
	(To record outstanding income tax expense)

*On December 31, 2018, unadjusted balance of office supplies is $ 1,300 and the unrecorded information shows, supplies remaining on hand to be used in next year is $ 8, 00.So,

Office Supplies Used (or Supplies expense)

= Office Supplies before adjustment - Office Supplies on hand

=$ 1,300 - $ 8, 00

=$ 5, 00 (To be shown in income statement)

Solution 2

Millar Ltd.

Income Statement

For the year ended December 31, 2018

Particulars	Amount ($)	Amount ($)
Service Revenue		48,000
Less: Cost of goods sold		(32,900)
Gross Profit		15,100
Less: Operating expenses
Wages payable	2,100
Depreciation	3,000
Insurance expense	450
Supplies expense	500	(6,050)
Operating Income		9,050
Less: Income Tax payable		(3,150)
Net Income		5,900

Millar Ltd.

Balance Sheet

December 31, 2018

Assets	Amount ($)	Amount ($)	Liabilities	Amount ($)	Amount ($)
Current Assets			Current Liabilities
Cash	19,600		Accounts Payable	7,500
Accounts Receivable	7,000		Wages Payable	2,100
Office Supplies: 1,300			Income Tax Payable	3,150
Less: Supplies Used :                  (500)	800		Total Current Liabilities		12,750
Prepaid Insurance:900			Stockholders’’ equity
Less: Insurance Expired                 : (450)	450		Share Capital (3,000 Share outstanding all year)	16,000
Total Current Assets		27,850	Retained Profit:    10,300 Add: Net Income            :5,900	16,200
Property, Plant & Equipment			Total Stockholders’’ equity		32,200
Equipment	27,000
Less: Accumulated Depreciation (12,000 +3,000)	(15,000)	12,000
Other Assets (non-current)		5,100
Total Assets		44,950	Total Liabilities		44,950

Good Luck.