Question

P3.5 (LO 3) (Adjusting Entries) The accounts listed below appeared in the December 31 trial balance of the Savard Theater.

		Debit		Credit
Equipment		$192,000
Accumulated Depreciation—Equipment				$  60,000
Notes Payable				90,000
Admissions Revenue				380,000
Advertising Expense		13,680
Salaries and Wages Expense		57,600
Interest Expense		1,400

Instructions

a.    From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.)

1.    The equipment has an estimated life of 16 years and a salvage value of $24,000 at the end of that time. (Use straight-line method.)

2.    The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use 360 days for denominator.)

3.    In December, 2,000 coupon admission books were sold at $30 each and recorded as Admissions Revenue. They could be used for admission any time after January 1.

4.    Advertising expense paid in advance and included in Advertising Expense $1,100.

5.    Salaries and wages accrued but unpaid $4,700.

b.    What amounts should be shown for each of the following on the income statement for the year?

1.    Interest expense.

2.    Admissions revenue.

3.    Advertising expense.

4.    Salaries and wages expense.

Answer 1

Solution a:

Adjusting Journal Entries
Date	Particulars	Debit	Credit
1)	Depreciation expense Dr [($192000- $24000)/16]	$10,500
	To Accumulated Depreciation		$10,500
2)	Interest expense Dr ($90000*8%*72/360)	$1,440
	To Interest Payable		$1,440
3)	Admission Revenue Dr (2000*$30)	$60,000
	To Unearned Admission Revenue		$60,000
4)	Prepaid Advertising Dr	$1,100
	To Advertising Expense		$1,100
5)	Salaries and wages Expesne Dr	$4,700
	To Salaries and wages Payable		$4,700

Solution b:

Interest expense = $1400+ $1440 = $2,840

Admissions revenue = $380000 - $60000 = $320,000

Advertising expense = $13680 - $1100 = $12,580

Salaries and wages expense = $57600 + $4700 = $62,300