Question

What would be the appropriate adjusting journal entries:

1. The notes payable balance relates to a bank loan obtained in 2018 that is payable in full on august 31,2023. the loan agreement specifies that Clarke pay interest annually on august 31 at a rate of 7.05%. Clarke's bookkeeper made the proper entry for the first interest payment.
2. On September 20,2019, Clarke paid $53,952 for ads to run evenly over a 10-month period, starting October 1,2019.
3. In November 2019, Clarke received $129,320 from a client as a deposit on a major new engagement. As of December 31, 2019, Clarke had completed $41,715 of these services.
4. Clarke operates 5 days a week, Mondays through Fridays. Employees are paid each Monday, for hours worked through the previous Friday. On Monday, December 30, 2019, the last pay day in 2019, Clarke paid its employees for hours worked during the week of December 23-27. The employees then worked their regular schedule through the end of the year. Clarke’s payroll averages $10,325 per day.
5. On June 1, 2019, Clarke signed a lease to rent additional building space. On that date, Clarke prepaid the first 18 months of rent totaling $59,202. The prepayment covers the period June 2019 through November 2020. Note – Contrary to the company’s normal practice, Clarke’s bookkeeper recorded the prepayment into the Rent Expense account. Give the adjusting entry needed when a company uses the expense approach to record a payment in advance.
6. Clarke performed $118,731 of engineering services for several clients in December 2019 that it has not yet billed, recorded or collected.
7. Clarke’s Office Supplies account at the beginning of 2019 had a balance of $14,320. In August, the company purchased an additional $25,095 of supplies. A physical count at year-end 2019 shows that $29,170 of the supplies remain on hand.
8. Clarke purchased its buildings in 2011 and its equipment in 2016. Clarke depreciates its fixed assets according to the straight-line method. For the buildings, it uses estimates of 40 years for the useful life and $180,000 for the salvage value. For the equipment, it uses estimates of 8 years for the useful life and $60,000 for the salvage value.
9. Clarke estimates that 8.77% of the 2019 year-end accounts receivable balance will not be collected.
10. The company’s income tax rate for the year is 25%. (Hint – The income tax rate is applied to the company’s income after all revenues and expenses have been considered except for the income tax charge.)

Accounts Payable                                                                      $   339,280

Accounts Receivable                                                                    674,925

Accumulated Depreciation – Buildings                                          133,893

Accumulated Depreciation – Equipment                                          172,832

Allowance for Doubtful Accounts                                                     8,157

Buildings                                                                                      918,720

Cash                                                                                            641,946

Common Stock ($2 par)                                                                147,950

Dividends                                                                                    118,360

Equipment                                                                                   562,784

Insurance Expense                                                                         139,610

Interest Expense                                                                               37,429

Land                                                                                              294,595

Notes Payable                                                                               610,000

Office Supplies                                                                                39,415

Prepaid Advertising                                                                         53,952

Rent Expense                                                                                   59,202

Retained Earnings                                                                         739,202

Salaries and Wages Expense                                                      2,591,272

Service Revenue                                                                       4,026,390

Unearned Service Revenue                                                           129,320

Utilities Expense                                                                            174,814

Answer 1

Solution:

a) Adjusted journal entries

Journal entries for Dec 19
			(in USD)
S.No	Particulars	Dr	Cr
1	Interest expense	5,576
	Interest payable		5,576
2	Advertisement	16,186
	Prepaid advertising		16,186
	(Booked for 3 months)
3	Unbilled revenue	41,715
	Service revenue		41,715
4	Salaries and wage expense	20,650
	Wages payable		20,650
	( for 2 days)
5	Prepaid rent	36,179
	Rent		36,179
	(Booked for june to dec)
6	Unbilled revenue receivable	118,731
	Accounts receivable		118,731
7	Office supplies expense	10,245
	Office supplies		10,245
	(Charge off = opening+additions-closing)
8	Depreication-building	18,468
	Depreication-equipment	83,797
	Accumulated dep-building		18,468
	Accumulated dep-equipment		83,797
9	Provision of debts	44,496
	Allowance for doubtful debts		44,496
10	Tax	225,635
	Provision of tax		225,635

Workings

I) trial balance

Trial balance
	Pre adjustment		Adjustment		Post adjustment
Particulars	Dr	Cr	Dr	Cr	Dr	Cr
Interest expense	37,429		5,576		43,005	-
Cash	641,946			-	641,946	-
Advertisement	-		16,186		16,186	-
Prepaid advertising	53,952		(16,186)	-	37,766	-
Advance from customers				-	-	-
Service revenue		4,026,390		41,715	-	4,068,105
Salaries and wage expense	2,591,272		20,650		2,611,922	-
Wages payable	-			20,650	-	20,650
Rent	59,202		(36,179)		23,023	-
Prepaid rent			36,179		36,179	-
Unbilled revenue receivable			118,731		118,731	-
Unbilled revenue		129,320		(41,715)	-	87,605
Office supplies	39,415		(10,245)		29,170	-
Office supplies expense			10,245		10,245	-
Depreication-building	-		18,468		18,468	-
Depreication-equipment	-		83,797		83,797	-
Accumulated dep-building		133,893		18,468	-	152,361
Accumulated dep-equipment		172,832		83,797	-	256,629
Allowance for doubtful debts		8,157		44,496	-	52,653
Accounts receivable	674,925	-	(118,731)		556,194	-
Tax			225,635		225,635	-
Provision of tax				225,635	-	225,635
Building	918,720		-	-	918,720	-
Equipment	562,784		-	-	562,784	-
Insurance expense	139,610		-	-	139,610	-
Notes payable	-	610,000	-	-	-	610,000
Common stock		147,950	-	-	-	147,950
Accounts payable		339,280	-	-	-	339,280
Land	294,595		-	-	294,595	-
dividends	118,360		-	-	118,360	-
Utilities expense	174,814		-	-	174,814	-
Interest payable				5,576	-	5,576
Retained earnings		739202			-	739,202
Provision of debts			44,496		44,496	-
	6,307,024	6,307,024	398,621	398,622	6,705,645	6,705,646
		-		(0)		(0)

iI) income statement

Income statement
Service revenue		4,068,105
Total revenue		4,068,105
Less: expenses
Salaries and wage expense	2,611,922
Insurance expense	139,610
Advertisement	16,186
Rent	23,023
Depreication-building	18,468
Depreication-equipment	83,797
Provision of debts	44,496
Office supplies expense	10,245
Interest expense	43,005
Utilities expense	174,814
		3,165,565
Net income		902,540
tax @ 25%		225,635
		676,905