33PGA_1 - Horngren'S Financial And Managerial Accounting

Question

Question :Laughter Landscaping has collected the following data for the December 31 adjusting entries: a. Each Friday, Laughter pays employees for the current week’s work. The amount of the weekly payroll is \(8,000 for a five-day workweek. This year, December 31 falls on a Tuesday. Laughter will pay its employees on January 3. b. On January 1 of the current year, Laughter purchases an insurance policy that covers two years, \)8,000.c. The beginning balance of Office Supplies was \(4,300. During the year, Laughter purchased office supplies for \)5,600, and at December 31 the office supplies on hand total \(1,500. d. During December, Laughter designed a landscape plan and the client prepaid \)6,500. Laughter recorded this amount as Unearned Revenue. The job will take several months to complete, and Laughter estimates that the company has earned 40% of the total revenue during the current year. e. At December 31, Laughter had earned \(3,000 for landscape services completed for Turnkey Appliances. Turnkey has stated that it will pay Laughter on January 10. f. Depreciation for the current year includes Equipment, \)3,000; and Trucks, \(2,200. g. Laughter has incurred \)250 of interest expense on a $550 interest payment due on January 15. Requirements 1. Journalize the adjusting entry needed on December 31 for each of the previous items affecting Laughter Landscaping. Assume Laughter records adjusting entries only at the end of the year. 2. Journalize the subsequent journal entries for adjusting entries a, d, and g.

Step-by-Step Solution

Answer

Adjusting entries are as follows:

	Journal entry
Transactions	Accounts and Explanation	Debit	Credit
(a)	Salaries Expense	$3,200
	Salaries Payable		$3,200
	To record accrued salaries expense
(b)	Insurance Expense	$4,000
	Prepaid Rent		$4,000
	To record insurance expense
(c)	Supplies Expense	$8,400
	Office Supplies		$8,400
	To record office supplies used
(d)	Unearned Revenue	$2,600
	Service Revenue		$2,600
	To record service revenue earned that was collected in advance
(e)	Accounts Receivable	$3,000
	Service Revenue		$3,000
	To record the service revenue earned
(f)	Depreciation Expense—Equipment	$3,000
	Accumulated Depreciation—Equipment		$3,000
	To record depreciation on equipment
	Depreciation Expense—Trucks	$2,200
	Accumulated Depreciation—Trucks		$2,200
	To record depreciation on trucks
(g)	Interest Expense	$250
	Interest Payable		$250
	To record accrued interest expense

Step-by-Step-Solution Step1: Calculation of Salaries Expense

Salaries expense is calculated as follows:

$$\begin{gathered} \mathbf{SalariesExpense}\mathbf{=}\mathbf{SalariesPerWeeklyPayroll}\mathbf{\times }\frac{\mathbf{NumberofDaysExpired}}{\mathbf{NumberofDaysPerPayrollWeek}} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{2}}{\mathbf{5}} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{200} \end{gathered}$$

Step 2: Calculation of Insurance Expense

Step 2: Calculation of Insurance Expense

$$\begin{gathered} \mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{12}}{\mathbf{24}} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 3: Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

$$\begin{gathered} \mathbf{OfficeSuppliesUsed}\mathbf{=}\mathbf{BeginningBalance}+\mathbf{Purchases}-\mathbf{OfficeSuppliesonHand} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{300}+\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{600}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{8},\mathbf{400} \end{gathered}$$ 

Step4 :Calculation of Service Revenue Earned our of Advance Received

Service revenue is calculated as follows:

$$\begin{gathered} \mathbf{ServiceRevenue}\mathbf{=}\mathbf{AmountReceived}\mathbf{\times }\mathbf{PercentagePortionEarned} \\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{40}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{600} \end{gathered}$$