Q8E - Intermediate Accounting (Kieso)

Question

E3-8 (L03) EXCEL (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August2017, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information relatedto unrecorded expenses that the business incurred during August.1. At August 31, Roddick owed his employees \(1,900 in wages that will be paid on September 1.2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the billwould be approximately \)600.3. On August 1, Roddick borrowed \(30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%.4. A telephone bill in the amount of \)117 covering August charges is unpaid at August 31.InstructionsPrepare the adjusting journal entries as of August 31, 2017, suggested by the information above.

Step-by-Step Solution

Answer

Journal entries are shown in step 2.

Step 1: Meaning of Adjusting Journal Entry

The adjusting journal entry means the unrecognized transactions are recorded in the books of accounts at the end of the accounting period.

Step 2: Preparation of adjusting journal entries

Ace Computer Services
Adjusting Journal entries on August 31, 2017
Date	Account and explanation	Debit $	Credit $
August 31	Wages expense	1900
	Wages payable		1900
	(To wages payable recorded)
August  31	Utilities expenses	600
	Accounts payable		600
	(To utility expenses recorded )
August 31	Interest expenses  (refer working note)	200
	Interest paayble		200
	(To interest is paid on the borrowed money from the bank)
August 31	Telephone expenses	117
	telephone payable		117
	(To telephone expenses payable recorded)

Working note:

Calculation of interest amount per month

 

$\begin{array}{c}\text{Interest\hspace{0.17em}amount\hspace{0.17em}per month}=\$30,000\times \frac{8}{100}\\ =\frac{\$2,400\text{\hspace{0.17em}per year\hspace{0.17em}}}{12}\\ =\$200\end{array}$