question archive University of UtahACCTG 3600 Paper Lion Company is completing the accounting process for the current year just ended, December 31
University of UtahACCTG 3600 Paper Lion Company is completing the accounting process for the current year just ended, December 31
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Paper Lion Company is completing the accounting process for the current year just ended, December 31. The following information has been gathered in order to prepare the adjusting journal entries.
a. The employees of the company earned $2,700 in wages from December 27 through December 31. These wages have not been paid.
b. The company collected $800 on December 31 from a customer for services to be provided on January 3.
c. The company borrowed $10,000 from Regional Bank on December 1. The loan requires a quarterly interest payment of $300. The first interest payment is due March 1.
d. On October 1, the company paid $1,500 for a six-month insurance policy. On October 1, the company increased the Prepaid Insurance account.
e.On September 1, the company received annual subscription payments of $6,000 for their online delivery service. The subscriptions are paid for in advance of service. On September 1, the company increased the Unearned Subscription revenue account.
f.Estimated annual depreciation on the company’s equipment is $560.
Required:
Prepare the adjusting entry for each of the above.
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Answer:
a. Record wages earned by employees but not yet paid.
DR Wages Expense $2,700
CR Wages Payable $2,700
b. Record cash received, but revenue not yet earned. (NOT AN ADJUSTING ENTRY,
SIMPLY JUST A TRANSACTION)
DR Cash $800
CR Unearned Revenue $800
c. Record interest incurred but not yet paid. Total interest due on March 1 = $300.
Interest incurred during December = $300/3 = $100
DR Cash $100
CR Unearned Revenue $100
d. To record expired insurance.
Entry on October 1:
DR Prepaid Insurance $1,500
CR Cash $1,500
Adjusting entry on December 31: Expired insurance = ($1,500/6)*3 = $750
DR Insurance Expense $750
CR Prepaid Insurance $750
e. Record the earned subscription revenue:
Entry on September 1:
DR Cash $6,000
CR Unearned Revenue $6,000
Adjusting entry on December 31: Earned revenue = ($6,000/12)*4 = $2,000
DR Unearned Revenue $2,000
CR Subscription revenue $2,000
f. Record annual depreciation:
DR Depreciation Expense $560
CR Accumulated Depreciation $560
