Question

Two different excercises - the last two pics is one excercise.

E4-3 L04-1 Recording Adjusting Entries Dodie Company completed its first year of operations on December 31. All of the year's entries have been recorded except for the following: 4. At yearend, employees earned wages of $4,000, which will be paid on the next payroll date in January of next year. 6. At year-end, the company had earned interest revenue of $1,500. The cash will be collected March 1 of the next year. Required: 1. What is the annual reporting period for this company? 2. Identify whether each transaction results in adjusting a deferred or an accrued account. Using the process illustrated in the chapter, prepare the required adjusting entry for transactions (a) and (b). Include appropriate dates and write a brief explanation of each entry. 3. Why are these adjustments made?

Answer 1

Solution

Dodie Company

1. Annual reporting period for this company –

Since the company completed its first year of operations on December 31, the annual reporting period for this company is Jan 1 to December 31.

2. Deferral or accrual transaction –

Transaction a. relating to the payment of employee earned wages on the next payroll date is an accrual transaction. The expenses accrued as of December 31 are paid on next payroll date in January. The employee earned wages relate to first year operations ending in December 31 but are paid in next year January.

Transaction b. relating to the earned interest revenue, where the cash would be collected on March 1 next year is a deferral revenue transaction. The earned interest relates to the operations of current year ending December 31 but the cash is collected on March 1^st next year.

Based on the accrual principle of accounting, the adjustments are made to match current year expenses and revenue with current year operations, despite being paid or earned in next year.

Adjusting entries –

Date	Account titles and Explanation	Ref No.	Debit	Credit
Dec-31	Wages Expense		$4,000
	Wages Payable			$4,000
	(To record the wages accrued during the year but yet to be paid)
Dec-31	Interest Revenue Receivable		$1,500
	Interest Revenue Earned			$1,500
	(To record interest revenue earned during the year, but not received)

A+T Williamson Company

Adjusting entry for insurance at December 31 –

Date	Account titles and Explanation	Ref No.	Debit	Credit
Dec-31	Insurance Expense		$600
	Prepaid Insurance			$600
	(To record the expired portion of the prepaid insurance during the current year)

Note – insurance expense for current year is computed as follows –

Prepaid insurance for two years = $4,800

Current year insurance expense is for three months, Oct 1 – Dec 31.

Hence, insurance expense for current year = 4,800 x 3/24 months = $600

Amount to be reported in current year’s income statement for Insurance Expense = $600

Amount to be reported in current year’s balance sheet for Prepaid Insurance = $4,200

(balance in prepaid insurance = 4,800 – 600 = $4,200)

Adjusting entry for supplies at December 31 –

Date	Account titles and Explanation	Ref No.	Debit	Credit
Dec-31	Shipping Supplies Expense		$68,000
	Shipping Supplies			$68,000
	(To record cost of the shipping supplies used during the year)

Amount to be reported in current year’s income statement of Shipping Supplies Expense = $68,000

Amount to be reported in current year’s balance sheet for Shipping Supplies = $20,000