Question

Assume the following information for company SDA on 31st December 2018, before
the preparation of the adjusted trial-balance:
Machinery (€) 38,000
Wages payable 1,300
Accumulated depreciation: machinery 6,000
Bank deposits 12,000
Unearned revenue 2,100
Prepaid insurance 3,600
Accounts receivable 6,500
Advances from customers 1,800
Revenue 13,000
Inventory 3,000
Long-term loans 16,000
Accounts payable 4,500
Retained earnings 13,000
Rent expense 9,600
Share Capital 15,000

Required

Prepare adjusting entries by taking into consideration the following
information:
a. The accrued interest on long-term loans for the fiscal year 2018 is calculated at an
interest rate of 6% on the balance of the loan at this date.
b. During December, unearned revenues of €1,500 were earned.
c. Depreciation charges on machinery for fiscal year 2018 amount to €3,160.
d. The accrued interest on deposits in December is €170.
e. On 10th October 2018, SDA prepaid €4,800 for six months’ rent and debited the
account Rent expense for the total amount of €4,800.
f. An amount of €600 was recognized as revenue of fiscal year 2018. This amount
corresponds to services that will be provided in the next fiscal year 2019.
g. Prepaid insurance expired at 31st December 2018.

Record the closing journal entries for the determination of the firm’s net
profit or loss assuming that the firm’s tax rate is 20% and the annual result of its
operations (profit or loss) is carried forward

Prepare the post-closing trial balance.
Provide the required calculations. Assume that the fiscal year end date of SDA is on
31st December 2018.

Answer 1

	Journal
	In the books of SDA
S No	Particulars	Dr/Cr.	Dr ($)	Cr ($)
a	Interest Expense A/c	Dr	960
	To Accrued Interest on loan A/c	Cr		960
	(Being Interest accrued @ 6%)
b	Unearned Revenue A/c	Dr	1,500
	To Revenue A/c	Cr		1,500
	(Being Unearned Revenue earned)
c	Depreciation A/c	Dr	3,160
	To Accumulated Depreciation A/c	Cr		3,160
	(Being Depreciation expense charged)
d	Accrued Interest on Deposits A/c	Dr	170
	To Interest Income on Deposits A/c	Cr		170
	(Being accrued interest on deposits recorded)
e	Prepaid Rent A/c	Dr	2,400
	To Rent Expense A/c	Cr		2,400
	(Being rent adjusted for 3 months)
f	Revenue A/c	Dr	600
	To Unearned revenue A/c	Cr		600
	(Being unearned revenue for 2019 adjusted)
g	Insurance Expense A/c	Dr	3,600
	To Prepaid Insurance A/c	Cr		3,600
	(Being Prepaid insurance expired)
Journal for determining firm's net profit or loss
S No	Particulars	Dr/Cr.	Dr ($)	Cr ($)
	Revenue A/c	Dr	13,900
	Interest Income on Deposits	Dr	170
	Profit and Loss A/c	Dr	850
	Insurance Expense	Cr		3,600
	Interest Expense	Cr		960
	Rent expense	Cr		7,200
	Depreciation	Cr		3,160
	(Being Profit and Loss recorded)
	Retained Earnings	Dr	680
	Income Tax Recoverable A/c	Dr	170
	To Profit and Loss A/c	Cr		850
	(Being Net operations transferred to retained earnings after tax adjustments)
	Trial Balance
	Particulars		Dr ($)	Cr ($)
	Machinery		38,000
	Wages payable			1,300
	Accumulated depreciation: machinery			9,160
	Bank deposits		12,000
	Unearned revenue			1,200
	Insurance Expense		3,600
	Accounts receivable		6,500
	Advances from customers			1,800
	Revenue			13,900
	Inventory		3,000
	Long-term loans			16,000
	Interest Expense		960
	Accrued Interest on loan			960
	Accounts payable			4,500
	Retained earnings			13,000
	Rent expense		7,200
	Prepaid Rent		2,400
	Share Capital			15,000
	Depreciation		3,160
	Accrued Interest on Deposits		170
	Interest Income on Deposits			170
	Total		76,990	76,990