Question

Problem 2-4 (Algo) Accounting cycle; adjusting entries through post-closing trial balance [LO2-4, 2-6, 2-7, 2-8]

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Pastina Company sells various types of pasta to grocery chains as private label brands. The company's reporting year-end is December 31. The unadjusted trial balance as of December 31, 2021, appears below.

   

Account Title	Debits		Credits
Cash	32,000
Accounts receivable	40,600
Supplies	1,800
Inventory	60,600
Notes receivable	20,600
Interest receivable	0
Prepaid rent	1,200
Prepaid insurance	6,600
Office equipment	82,400
Accumulated depreciation			30,900
Accounts payable			31,600
Salaries payable			0
Notes payable			50,600
Interest payable			0
Deferred sales revenue			2,300
Common stock			64,200
Retained earnings			30,000
Dividends	4,600
Sales revenue			149,000
Interest revenue			0
Cost of goods sold	73,000
Salaries expense	19,200
Rent expense	11,300
Depreciation expense	0
Interest expense	0
Supplies expense	1,400
Insurance expense	0
Advertising expense	3,300
Totals	358,600		358,600

Information necessary to prepare the year-end adjusting entries appears below.

1. Depreciation on the office equipment for the year is $10,300.
2. Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $900.
3. On October 1, 2021, Pastina borrowed $50,600 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
4. On March 1, 2021, the company lent a supplier $20,600 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.
5. On April 1, 2021, the company paid an insurance company $6,600 for a one-year fire insurance policy. The entire $6,600 was debited to prepaid insurance.
6. $560 of supplies remained on hand at December 31, 2021.
7. A customer paid Pastina $2,300 in December for 900 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
8. On December 1, 2021, $1,200 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $600 per month. The entire amount was debited to prepaid rent.

Prepare closing entries.

Answer 1

Closing entries 1 Sales Revenue Interest Revenue Retained Earnings $ 149,000 $ 1,373 $ 150,373 $ 127,708 2 Retained Earnings Cost of goods sold Salaries expense Rent expense Depreciation expense Interest expense Supplies expense Insurance expense Advertising expense $ 73,000 $ 20,100 $ 11,900 $ 10,300 $ 1,518 $ 2,640 $ 4,950 $ 3,300 $ 4,600 3 Retained Earnings Dividends $ 4,600

Pastina Company Journal entries No. Account 1 Depreciation expense Accumulated Depreciation Credit Calculation Debit $ 10,300 $ 10,300 $ 900 2 Salaries expense Salaries Payable $ 900 $ 1,518 =50,600*12%*3/12 3 Interest expense Interest Payable $ 1,518 $ 1,373 =20,600*8%*10/12 4 Interest Receivable Interest Revenue $ 1,373 $ 4,950 =6,600/12*9 5 Insurance expense Prepaid Insurance $ 4,950 $ 1,240 =1,800-560 6 Supplies expense Supplies $ 1,240 7 No entry $ 600 8 Rent expense Prepaid Rent $ 600

Adjustments Debit Credit Unadjusted TB Debit Credit 32,000 40,600 1,800 60,600 20,600 Adjusted TB Debit Credit 32,000 40,600 1,240 560 1,373 1,200 6,600 82,400 600 4,950 10,300 30,900 31,600 900 50,600 Pastina Company Account Names Cash Accounts Receivable Supplies Inventory Notes Receivable Interest Receivable Prepaid Rent Prepaid Insurance Office Equipment Accumulated Depreciation Accounts Payable Salaries Payable Notes Payable Interest Payable Deferred sales revenue Common Stock Retained Earnings Dividends Sales Revenue Interest Revenue Cost of goods sold Salaries expense Rent expense Depreciation expense Interest expense Supplies expense Insurance expense Advertising expense Totals 1,518 2,300 64,200 30,000 60,600 20,600 1,373 600 1,650 82,400 41,200 31,600 900 50,600 1,518 2,300 64,200 30,000 4,600 149,000 1,373 73,000 20,100 11,900 10,300 1,518 2,640 4,950 3,300 372,691 372,691 4,600 149,000 1,373 73,000 19,200 11,300 900 600 10,300 1,518 1,240 4,950 1,400 3,300 358,600 358,600 20,881 20,881