Preparing Adjusting Entries from a Trial BalanceThe Off-Campus Playhouse adjusts its accou...

Preparing Adjusting Entries from a Trial Balance

The Off-Campus Playhouse adjusts its accounts every month. Below is the company’s unadjusted trial balance dated September 30, 2011. Additional information is provided for use in preparing the company’s adjusting entries for the month of September. (Bear in mind that adjusting entries have already been made for the first eight months of 2011, but not for September.)

Other Data

1. Costume rental expense for the month is $600. However, the costume rental expense for several months has been paid in advance.

2. The building is being depreciated over a period of 25 years (300 months).

3. The fixtures and equipment are being depreciated over a period of five years (60 months).

4. On the first of each month, the theater pays the interest which accrued in the prior month on its note payable. At September 30, accrued interest payable on this note amounts to $1,062.

5. The playhouse allows local nursing homes to bring seniors to the plays on any weekday performance for a fixed price of $500 per month. On August 31, a nursing home made a $1,500 advance payment covering the months of September, October, and November.

6. The theater receives a percentage of the revenue earned by Sweet Corporation, the concessionaire operating the snack bar. For snack bar sales in September, Sweet owes Off-Campus Playhouse $4,600, payable on October 14. No entry has yet been made to record this revenue. (Credit Concessions Revenue.)

7. Salaries earned by employees, but not recorded or paid as of September 30, amount to $2,200. No entry has yet been made to record this liability and expense.

8. Income taxes expense for September is estimated at $3,600. This amount will be paid in the October 15 installment payment.

9. Utilities expense is recorded as monthly bills are received. No adjusting entries for utilities expense are made at month-end.

Instructions

a. For each of the numbered paragraphs, prepare the necessary adjusting entry (including an explanation).

b. Refer to the balances shown in the unadjusted trial balance at September 30. How many months of expense are included in each of the following balances? (Remember, Off-Campus Playhouse adjusts its accounts monthly. Thus, the accounts shown were last adjusted on August 31,2011.)

1. Utilities expense

2. Depreciation expense

3. Accumulated depreciation: building

Assume the playhouse has been operating profitably all year. Although the September 30 trial balance shows substantial income taxes expense, income taxes payable is a much smaller amount. This relationship, is quite normal throughout much of the year. Explain.