Question

17.       (Chapter 3)

            Chris’s Florist Shop records all prepaid costs as assets and all revenue collected in advance as liabilities, and makes adjustments only at its fiscal year end, which is June 30^th. All of Chris’s purchases are for cash unless stated otherwise. The following information relates to Chris’s June 30, 2011 year end, its first year of operations.

1.         On July 2^nd, 2010, Chris purchased equipment for $12,000. The equipment is expected to have a useful life of 8 years.

2.         On August 1, 2010 a one-year insurance policy was purchased for $1,740.

3.         On February 1, 2011 a corporate customer paid $2,080 as full payment for a one year contract for fresh flowers to be delivered to its offices every Monday morning. At June 30, 21 of the required 52 deliveries had been completed.

4.         On July 2, 2010 Chris purchased enough supplies to last the entire first year of operations for $4,400. At June 30, 2011, Chris counted the supplies on hand and calculated the cost, which amounted to $1,035.

5.         On May 31, Chris borrows $20,000 from the bank to increase the amount of inventory and expand the business. The interest rate on the loan is 6% and requires monthly payments of interest on the first of each month. The principal is due in one year’s time. The first interest payment is due July 1.

6          Chris pays her store assistant on alternate Fridays. The last pay day in June was June 20^th and the first pay day after year end July is July 4^th. The assistant worked 30 hours during this period, of which 20 were in July, and the rest in June. The assistant earns $9.50 an hour.

7.         June 28^th is a busy day and Chris has to make deliveries to numerous customers. On July 5^th she reviews her June billings, and realizes that she made one large sale for $325 on June 30^th for flowers that were delivered, but for which no invoice was issued. The sale was to a regular customer who will pay promptly when the invoice is sent.

8.         Chris offers customers a coupon valued at $20 every ten floral arrangements that a customer buys. At June 30^th, she reviews her records and finds that 18 customers have purchased enough flowers to claim coupons. Chris records the cost of these coupons as “Coupon Expense” when the customer becomes entitled to them.

Instructions:

(a)        For each transaction, prepare any adjusting entries required at June 30, 2011.

Answer 1

	Adjusting Entries
	Particulars			Debit	Credit
1)	Depreciation on Equipment			$ 1,500.00
	To Accumulated Depreciation				$ 1,500.00
	($ 12000 / 8 years)
2)	Insurance Expense			$ 1,595.00
	To Prepaid Insurance				$ 1,595.00
	($ 1740 x 11/12)
3)	Deferred Revenue			$    840.00
	To Sales Revenue				$    840.00
	($ 2080 x 21 / 52)
4)	Supplies Expense			$ 3,365.00
	To Supplies				$ 3,365.00
	($ 4400 - $ 1035)
5)	Interest Expense			$    100.00
	To Interest Payable				$    100.00
	($ 20000 x 6% x 1/12)
6)	Salaries Expense			$    190.00
	To Salaries Payable				$    190.00
	($ 9.50 x 20 hours)
7)	Accounts Receivable			$    325.00
	To Sales Revenue				$    325.00
8)	Coupon Expense			$    360.00
	To Prepaid Coupons				$    360.00
	($ 20 x 18)