Q 36PGA-1 - Horngren'S Financial And Managerial Accounting

Question

The unadjusted trial balance of Guthrie Inn Company at December 31, 2018, and the data needed for the adjustments follow. Adjustment data at December 31 follow: GUTHRIE INN COMPANY Unadjusted Trial Balance December 31, 2018  Account Title Prepaid Insurance Cash Debit Credit Accounts Receivable Office Supplies Building Accumulated Depreciation—Building Accounts Payable Salaries Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expense Insurance Expense Depreciation Expense—Building Advertising Expense Supplies Expense Total Balance \( 13,500 \) 569,760 \( 569,760 530,000 288,950 3,600 15,500 15,100 4,600 800 \) 260,000 1,710 2,340 2,800 620 G  a. As of December 31, Guthrie had \(700 of Prepaid Insurance remaining. b. At the end of the month, Guthrie had \)500 of office supplies remaining. c. Depreciation on the building is \(1,200. d. Guthrie pays its employees weekly on Friday. Its employees earn \)1,800 for a five-day workweek. December 31 falls on Wednesday this year. e. On November 20, Guthrie contracted to perform services for a client receiving \(3,600 in advance. Guthrie recorded this receipt of cash as Unearned Revenue. As of December 31, Guthrie has \)1,600 still unearned. Requirements 1. Journalize the adjusting entries on December 31. 2. Using the unadjusted trial balance, open the accounts (use a four-column ledger) with the unadjusted balances. Post the adjusting entries to the ledger accounts. 3. Prepare the adjusted trial balance. 4. Assuming the adjusted trial balance has total debits equal to total credits, does this mean that the adjusting entries have been recorded correctly? Explain

Step-by-Step Solution

Answer

Adjusting entries are as follows:

	Journal entry
Transactions	Accounts and Explanation	Debit	Credit
(a)	Insurance Expense	$3,900
	Prepaid Insurance		$3,900
	To record insurance expense
(b)	Supplies Expense	$300
	Office Supplies		$300
	To record office supplies used
(c)	Depreciation Expense— Building	$1,200
	Accumulated Depreciation— Building		$1,200
	To record depreciation on building
(d)	Salaries Expense	$1,080
	Salaries Payable		$1,080
	To record accrued salaries expense
(e)	Unearned Revenue	$2,000
	Service Revenue		$2,000
	To record service revenue earned that was collected in advance

Step-by-Step-Solution Step 1: Calculation of Insurance Expense

Insurance expense is calculated as follows: 

 $\begin{array}{rcl}\mathbf{InsuranceExpense}& \mathbf{=}& \mathbf{UnadjustedBalance}-\mathbf{EndingBalance}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{600}-\mathbf{\$}\mathbf{700}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{900}\\ & & \end{array}$

Step 2: Calculation of Supplies Expense

supplies expense is calculated as follows: 

 $\begin{array}{rcl}\mathbf{SuppliesExpense}& \mathbf{=}& \mathbf{UnadjustedBalance}-\mathbf{EndingBalance}\\ & \mathbf{=}& \mathbf{\$}\mathbf{800}-\mathbf{\$}\mathbf{500}\\ & \mathbf{=}& \mathbf{\$}\mathbf{300}\end{array}$

Step 3: Calculation of Salaries Expense

Salaries expense is calculated as follows:

 $\begin{array}{rcl}\mathbf{SalariesExpense}& \mathbf{=}& \mathbf{SalariesPerWeeklyPayroll}\mathbf{\times }\frac{\mathbf{NumberofDaysExpired}}{\mathbf{NumberofDaysPerPayrollWeek}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{5}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{080}\end{array}$

Step 4: Calculation of Service Revenue

Service Revenue is calculated as follows: 

 $\begin{array}{rcl}\mathbf{ServiceRevenue}& \mathbf{=}& \mathbf{UnadjustedBalance}\mathbf{UnearnedRevenue}-\mathbf{EndingBalance}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{600}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}\end{array}$