Question

The following selected transactions were recorded by Lynbrook Inc. during 2019. Lynbrook has a policy of recording transactions directly to Balance Sheet accounts under most circumstances. However, at times the company makes exceptions to this policy. Any exceptions to this policy are clearly identified in the transactions below.

Date Jan Transactions Purchased $480 of office supplies from Office Depot. 20 Feb 1 Rented a building from Scan House Inc., paying 1 year's rent of $3,600 in advance. Recorded the $3,600 payment as rent expense. Mar 1 Borrowed $10,000 from the bank, signing a 1-year note with interest of 12% per annum. The bank insisted on collecting the interest in advance, so it withheld the interest amount from the funds distributed to Lynbrook. The company recorded the transaction as a debit to Cash, $8,800, a debit to Interest Expense, $1,200, and a credit to Notes Payable, $10,000. May 1 Purchased office equipment for $15,000, paying $3,000 down and signing a 2-year, 12% per annum note payable for the balance. The office equipment is expected to have a useful life of 10 years and a residual value of $1,500. Straight-line depreciation is used by Lynbrook. May 31 Purchased a 3-year comprehensive insurance policy for $720. Aug 1 Sold land for $9,000. The purchaser made a $2,000 down payment and signed a 1-year, 10% note, for the balance. The interest and principal will be collected on the maturity date. Rented a portion of the retail floor space to Northwind Safety, Inc. for $120 per month, collecting 8 months' rent in advance. Recorded the $960 receipt as rent revenue 13 Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year.

On December 31, 2019, the following additional information is available:

1. Property taxes for 2019 are due to be paid by April 1, 2020. The company has not paid or recorded its $2,900 property taxes for 2019.

2. The $520 December utility bill has not been recorded or paid.

3. Salaries accrued but not paid total $900.

4. Travel cost reports indicate that $750 of the $900 advanced has been used to pay for travel expenses by company personnel, the remaining balance will be used in January 2020.

5. The Office Supplies account had a balance of $125 on January 1, 2019. A physical count on December 31, 2019, showed $175 of office supplies on hand.

6. On January 1, 2019, the Buildings account and the Store Equipment account had balances of $100,000 and $65,000, respectively. The buildings are expected to have a 20-year useful life and an $8,000 residual value, while the store equipment is expected to have a 10-year life and a $2,000 residual value. They are being depreciated using the straight-line method, with a full year depreciation taken during the year an asset is acquired.

7. The income tax rate is 30% on current income and is payable in the first quarter of 2020. The pretax income of the company before adjustments is $27,749.

Required:

On the basis of the preceding information (selected entries during the year and additional information 1-7), prepare the required adjusting journal entries at December 31, 2019. Lynbrook has a policy of recording adjusting entries once a year, at year-end (12/31). Each entry explanation should include supporting computations. (Round to the nearest dollar.)

Answer 1

61 Debit Credit 63 Date Account Title & Explanation 2019 31-Dec Property Taxes Property Taxes Payable to record accrued property taxes) 2900 2900 520 31-Dec Utilities expense Utilities Payable to record accrued property taxes) 520 750 31-Dec Travel expense Prepaid Travel expense (To record consumption of travel expense) 750 430 31-Dec Supplies expense (125+480 - 175) Supplies (T record supplies consumed during the Year) 430 4,600 31-Dec Depreciation Expense - Building (100000-8000)/20 Accumulated Depreciation - Building (To record depreciation expense) 4,600 6,300 Depreciation Expense - Store Equipment (65000-2000)/10 Accumulated Depreciation -Store Equipment (To record depreciation expense) 6,300

1,350 Depreciation Expense - Office Equipment (15000-1500)/10 Accumulated Depreciation -Store Equipment (To record depreciation expense) 1,350 90 300 31-Dec Prepaid Rent (3600-(3600/12 *11) Rent expense (To record prepaid rent) 300 94 200 31-Dec Prepaid interest expense (1200-(1200/12 *1) Interest expense (To record prepaid interest expense) 200 97 98 99 100 160 31-Dec Insurance expense (720/36*8) Prepaid insurance (To record expired insurance) 160 101 292 102 103 104 105 31-Dec Interest Receivable (7000*10% * 5/12) Interest Revenue (To record accrual of interest revenue) 292 106 600 107 108 109 110 31-Dec Rent Revenue Unearned Rent (120*5) (To record unearned rent revenue during the Year) 600

3279 (27749 -2900-520-750-430-4600-6300-1350+300+200- 111 112 113 114 31-Dec Income Tax Expense Income Tax Payable (To record accrued income taxes) 3279 115