A review of the ledger of Khan Company at 31 December 2012 produces the following data pertaining to the preparation of annual adjusting entries.
1. Prepaid Insurance $9 800. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on 1 July 2011, for $6 000. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on 1 January 2012 for $4 800. This policy has a term of 2 years.
2. Unearned Subscriptions $49 000. The company began selling magazine subscriptions in 2012 on an annual basis. The magazine is published monthly. The selling price of a subscription is $50. A review of subscription contracts reveals the following
Subscription Date: Number of Subscription:
1 October 200 1 November 300 1 December 480 980 3. Notes Payable $40 000. This balance consists of a note for 6 months at an annual interest rate of 9%, dated 1 September. 4. Salaries Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $500 each per week, and three employees earn $800 each per week. 31 December is a Wednesday. Employees do not work weekends. All employees worked the last 3 days of December.
Instruction: Prepare the adjusting entries as at 31 December 2012.
Date | Account title | Debit | credit |
31 December 2012 | |||
a | Insurance expense | 4400 | |
Prepaid Insurance | 4400 | ||
[being insurance expired] | |||
b | Unearned subscription revenue | 7000 | |
Subscription revenue | 7000 | ||
c | Interest expense | 1200 | |
Interest payable | 1200 | ||
[Being interest accrued for 4 months :40000*.09*4/12] [1Sep -31Dec] | |||
d | Salaries and wage expense | 2940 | |
Salaries and wage payable | 2940 |
**Insurance expense:
Policy B4564 : 6000/3 = 2000
Policy A2958 = 4800/2 = 2400
Total : 4400
**Subscription revenue earned:
Month | Unearned revenue received | Months for which revenue is earned | Revenue earned out of 12 months |
Oct | 200*50=10000 | 3 [1Oct -31Dec] | 10000*3/12= 2500 |
Nov | 300*50=15000 | 2 [1Nov -31Dec] | 15000*2/12= 2500 |
Dec | 480*50= 24000 | 1 [1Dec- 31 Dec] | 24000*1/12= 2000 |
7000 |
**salary
Total salary accrued | ||
Salary per day | 3 days salaries accrued | |
5 employees | 500/5=100 | 5* 100*3 = 1500 |
3Employees | 800/5=160 | 3* 160*3 = 1440 |
2940 |
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