Question

Notes Problems Problem 1 Part A: Prepare journal entries for each of the following transactions for the barbecue restaurant The Grill Next Door. a. On October 1, $15,000 was paid for a one-year fire insurance policy. b. On June 30, the company lent its chief financial officer $10,000; principal and interest at 5% are due in one year. c. Equipment costing $60,000 was purchased at the beginning of the year for cash. Part B: Prepare the necessary adjusting entries at December 31 (year-end) related to the entries above. Depreciation is $12,000 per year. a. Insurance policy b. Loan to CFO c. Equipment Part C: If the adjusting entries above were not recorded, would net income be higher or lower and by how much?

Answer 1

Problem 1
Part A:
Journal entries:
Date	Particular	DR	CR
		$	$
a.	Prepaid insurance a/c ………………Dr	15000
	Cash a/c		15000
	( Being paid for fire insurance policy for one year)
b.	Note receivable a/c	10000
	cash a/c		10000
	( being company lent to chief financial officer)
c.	Equipment a/c                        Dr	60000
	cash a/c		60000
	(being purchase of equipment)
Part B:
Journal entries:
Date	Particular	DR	CR
		$	$
a.	Insurance expenses	3750
	Prepaid insurance		3750
	(Being three month fire insurance policy for the year)
b.	Interest receivable a/c          Dr	250
	Interest revenue		250
	( Being interest on note receivable due)
c.	Depreciation expenses a/c      Dr	12000
	Equipment /Accumulated         Depreciation a/c		12000
	(Being depreciation for the Equipment charged)
	NOTE:
a.	insurance expenses=15000*3/12
	=3750
b.	interest receivable= 10000*5%*6/12 month
	=250
	it is assumed that ,company lent to chief financial officer at the end of month june
c.	Accumulated depreciation= 12000
Part C:
	If the adjusting entries above were not recorded, the net income will be higher by $15500
	Explanation :
	expenses:	$
	insurance expenses	3750
	Accumulated depreciation	12000
	less : income
	interest receivable	-250
	net income increse by	15500
Problem 2
a.	Supplies expense= 5,250
	Explanation:
	opening balance	1500
	less: supplies expenses	2000
	less: closing baalnce	3600
	supplies purchase	4100
b.	journal entries:
	Insurance expenses	1300
	Prepaid insurance		1300
	(Being december month fire insurance policy for the year)
	insurance expenses=6000-4700
c.	salaries expenses a/c	10000
	salary payable		10000
	(being salaries paid of $10000)
d.	Rnt received in 1st november=3000
	(2000*3@ months)
	rent revenue recognised in december for 2 months december and november=2000
	journal entries
	Rent revenue	2000
	Deffered rent Revenue		2000