29 Jun Question Preparing Adjusting Entries P
Question
Preparing Adjusting Entries P 2.
On November 30, the end of the current fiscal year, the following information is available to assist Caruso Corporation’s accountants in making adjusting entries:
a. Caruso Corporation’s Supplies account shows a beginning balance of $2,350. Purchases during the year were $4,218. The end-of-year inventory reveals supplies on hand of $1,397.
b. The Prepaid Insurance account shows the following on November 30:
Beginning balance $4,720
July 1 4,200
October 1 7,272
The beginning balance represents the unexpired portion of a one-year policy purchased the previous year. The July 1 entry represents a new one-year policy, and the October 1 entry represents additional coverage in the form of a three-year policy.
c. The following table contains the cost and annual depreciation for buildings and equipment, all of which Caruso Corporation purchased before the cur-rent year:
Account Cost Annual Depreciation
Buildings $298,000 $16,000
Equipment 374,000 40,000
d. On September 1, the company completed negotiations with a client and accepted an advance payment of $18,600 for services to be performed in the next year. The $18,600 was credited to the Unearned Service Revenue account.
e. The company calculated that as of November 30, it had earned $7,000 on an $11,000 contract that would be completed and billed in January.
f. Among the liabilities of the company is a note payable in the amount of $300,000. On November 30, the accrued interest on this note amounted to$18,000.
g. On Saturday, December 2, the company, which is on a six-day workweek, will pay its regular salaried employees $15,000.
h. On November 29, the company completed negotiations and signed a con-tract to provide services to a new client at an annual rate of $17,500.
i. Management estimates income taxes for the year to be $23,000.
Required
1. Prepare adjusting entries in journal form for each item listed above.
2. Explain how the conditions for revenue recognition are applied to transactions e and h
P 4. Melvin Patel bid for and won a concession to rent bicycles in the local park during the summer. During the month of June, Patel completed the following transactions for his bicycle rental business:
June
2 Began business by placing $7,200 in a business checking accounting the name of the corporation in exchange for 7,200 shares of $1 par value common stock.
3 Purchased supplies on account for $150.
4 Purchased 10 bicycles for $2,500, paying $1,200 down and agreeing to pay the rest in 30 days.
5 Paid $2,900 in cash for a small shed to store the bicycles and to use for other operations.
8 Paid $400 in cash for shipping and installation costs (considered an addition to the cost of the shed) to place the shed at the park entrance.
9 Hired a part-time assistant to help out on weekends at $7 per hour.
10 Paid a maintenance person $75 to clean the grounds.
June
13 Received $970 in cash for rentals.
17 Paid $150 for the supplies purchased on June 3.
18 Paid a $55 repair bill on bicycles.
23 Billed a company $110 for bicycle rentals for an employee outing.
25 Paid the $100 fee for June to the Park District for the right to operate the bicycle concession.
27 Received $960 in cash for rentals.
29 Paid the assistant wages of $240.
30 Declared and paid a dividend of $500.
Required
1. Prepare entries to record these transactions in journal form.
2. Set up the following T accounts and post all the journal entries: Cash; Accounts Receivable; Supplies; Shed; Bicycles; Accounts Payable; Common Stock; Dividends; Rental Revenue; Wages Expense; Maintenance Expense; Repair Expense; and Concession Fee Expense.
3. Prepare a trial balance for Patel Rentals, Inc., as of June 30, 2010.
4. Compare and contrast how the issues of recognition, valuation, and classification are settled in the transactions of June 3 and 10.
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