Q3P - Intermediate Accounting (Kieso)

Question

A review of the ledger of Baylor Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries.

1. Salaries and Wages Payable \(0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive \)700 each per week, and three employees earn \(600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

2. Unearned Rent Revenue \)429,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a \(5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.

    

   Date	Term (in months)	Monthly Rent	Number of Leases
   Nov. 1	6	\)6,000	5
   Dec. 1	6	\(8,500	4

3. Prepaid Advertising \)13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below.

   Contract	Due date	Amount	Number of magazine issue
   A650	May 1	\(6,000	12
   B974	Oct. 1	7,200	24

   The first advertisement runs in the month in which the contract is signed

4. Notes Payable \)60,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.

   Instructions 

   Prepare the adjusting entries at December 31, 2017. (Show all computations).

   
   

Step-by-Step Solution

Answer

The total debit and credit side of the journal is $105,220

Step 1: Meaning of Journal Entries

Journal entries refer to recording the business entity's monetary transactions in chronological order in a proper format.

Step 2: Preparing adjusting entries

Date	Particulars	Debit ($)	Credit ($)
Dec. 31	Salaries and Wages expense	2,120
	Salaries and Wages Payable		2,120
Dec. 31	Unearned Rent Revenue	94,000
	Rent revenue		94,000
Dec. 31	Advertising expense	4,900
	Prepaid advertising		4,900
Dec. 31	Internet expense	4,200
	Interest payable		4,200
		$105,220	$105,220

Working Note:

Calculation of Total accrued salaries

Employees	Calculation	Amount
Five employees	$\left(5\times \$700\times \frac{2}{5}\right)$	$1,400
Three employees	$(3\times \$600\times \frac{2}{5})$	720
Total accrued salaries	$2,120

Calculation of rent earned

Date	Term (in months)	Monthly Rent	Number of Leases	Calculation	Amount
Nov. 1	6	$6,000	5	$(5\times \$6,000\times 2)$	$60,000
Dec. 1	6	$8,500	4	$\left(4\times \$8,500\times 1\right)$	34,000

Total rent earned

$94,000

Calculation of Advertising expenses

Contract	Due date	Amount	Number of magazine issue	Calculation	Answer
A650	May 1	$6,000	12	$\left(6,000\times \frac{8}{12}\right)$	4,000
B974	Oct. 1	7,200	24	$\left(7,200\times \frac{3}{24}\right)$	900

Advertising expense

$4,900

Calculation of interest payable

$$\begin{gathered} \mathbf{Interest}\mathbf{ }\mathbf{expense}\mathbf{=}\mathbf{\$}\mathbf{60}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{12}}{\mathbf{100}}\mathbf{\times }\frac{\mathbf{7}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{200} \end{gathered}$$