Q39PGB-1 - Horngren'S Financial And Managerial Accounting

Question

Lopez Landscaping has the following data for the December 31 adjusting entries: a. Each Friday, Lopez pays employees for the current week’s work. The amount of the weekly payroll is \(6,500 for a five-day workweek. This year, December 31 falls on a Wednesday. Lopez will pay its employees on January 2. b. On January 1 of the current year, Lopez purchases an insurance policy that covers two years, \)7,500. c. The beginning balance of Office Supplies was \(3,700. During the year, Lopez purchased office supplies for \)5,800, and at December 31 the office supplies on hand total \(3,000. d. During December, Lopez designed a landscape plan and the client prepaid \)6,000. Lopez recorded this amount as Unearned Revenue. The job will take several months to complete, and Lopez estimates that the company has earned 70% of the total revenue during the current year. e. At December 31, Lopez had earned \(7,500 for landscape services completed for Tomball Appliances. Tomball has stated that it will pay Lopez on January 10. f. Depreciation for the current year includes Equipment, \)3,800; and Trucks, \(1,400. g. Lopez has incurred \)250 of interest expense on a $350 interest payment due on January 15. Requirements 1. Journalize the adjusting entry needed on December 31 for each of the previous items affecting Lopez Landscaping. Assume Lopez 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	$3,900
	Salaries Payable		$3,900
	To record accrued salaries expense
(b)	Insurance Expense	$3,750
	Prepaid Rent		$3,750
	To record insurance expense
(c)	Supplies Expense	$6,500
	Office Supplies		$6,500
	To record office supplies used
(d)	Unearned Revenue	$4,200
	Service Revenue		$4,200
	To record service revenue earned that was collected in advance
(e)	Accounts Receivable	$7,500
	Service Revenue		$7,500
	To record the service revenue earned
(f)	Depreciation Expense—Equipment	$3,800
	Accumulated Depreciation—Equipment		$3,800
	To record depreciation on equipment
	Depreciation Expense—Trucks	$1,400
	Accumulated Depreciation—Trucks		$1,400
	To record depreciation on trucks
(g)	Interest Expense	$250
	Interest Payable		$250
	To record accrued interest expense

Step 1: Calculation of Salaries Expense

Salaries expense is calculated as follows:

$\begin{array}{c}\mathbf{SalariesExpense}\mathbf{=}\mathbf{SalariesPerWeeklyPayroll}\mathbf{\times }\frac{\mathbf{NumberofDaysExpired}}{\mathbf{NumberofDaysPerPayrollWeek}}\\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{500}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{5}}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{900}\end{array}$

Step 2: Calculation of Insurance Expense

Insurance expense is calculated as follows:

$\begin{array}{c}\mathbf{InsuranceExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{NumberofMonthsExpired}}{\mathbf{TotalMonthsofInsurancePaid}}\\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{500}\mathbf{\times }\frac{\mathbf{12}}{\mathbf{24}}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{750}\end{array}$ 

Step 3: Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

$\begin{array}{c}\mathbf{OfficeSuppliesUsed}\mathbf{=}\mathbf{BeginningBalance}+\mathbf{Purchases}-\mathbf{OfficeSuppliesonHand}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{800}\mathbf{-}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{500}\end{array}$ 

Step 4 : Calculation of Service Revenue Earned out of the Advance Received

Service revenue is calculated as follows:

$\begin{array}{c}\mathbf{ServiceRevenue}\mathbf{=}\mathbf{AmountReceived}\mathbf{\times }\mathbf{PercentagePortionEarned}\\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{70}\mathbf{\%}\\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{200}\end{array}$