Question

Chem-Lite, Inc., maintains its accounts on the basis of a fiscal year ending March 31. At March 31, 20X1, the Equipment account in the general ledger appeared as shown below. The company uses straight-line depreciation, a 10-year life, and 10 percent salvage value for all its equipment. It is the company’s policy to take a full year’s depreciation on all additions to equipment occurring during the fiscal year, and you may treat this policy as a satisfactory one for the purpose of this problem. The company has recorded depreciation for the fiscal year ended March 31, 20X1.

Equipment 4/1/X0 Bal. forward 100,000

12/1/X0 10,500

1/2/X1 1,015

2/1/X1 1,015

3/1/X1 1,015

Upon further investigation, you find the following contract dated December 1, 20X0, covering the acquisition of equipment: List price $ 30,000 5% sales tax 1,500 Total $ 31,500 Down payment 10,500 Balance 21,000 8% interest, 24 months 3,360 Contract amount $ 24,360 Required: Prepare the adjusting entries you would propose as auditor of Chem-Lite, Inc., with respect to the equipment and related depreciation accounts at March 31, 20X1. (Assume that all amounts given are material.)

Answer 1

Date	Particulars	Debit	Credit
01-Dec-20X0	Equipment A/c	21000
	To Bank Loan A/c (EMI)		21000
	(Record Asset by raising Bank Loan)
01-Dec-20X0	Sales Tax A/c	1500
	To Equipment A/c		1500
	(Tax Amount recoded from Equipments A/c to correct code)
02-Jan-20X1	Bank Loan A/c (EMI)	875		(21000/24)
	Bank Interest A/c	140		(3360/24)
	To Equipment A/c		1015	(24360/24)
	(Bank Loan reduced & Interest Exp booked by transfering EMI amount wrongly booked in Equipments A/c)
01-Feb-20X1	Bank Loan A/c (EMI)	875		(21000/24)
	Bank Interest A/c	140		(3360/24)
	To Equipment A/c		1015	(24360/24)
	(Bank Loan reduced & Interest Exp booked by transfering EMI amount wrongly booked in Equipments A/c)
01-Mar-20X1	Bank Loan A/c (EMI)	875		(21000/24)
	Bank Interest A/c	140		(3360/24)
	To Equipment A/c		1015	(24360/24)
	(Bank Loan reduced & Interest Exp booked by transfering EMI amount wrongly booked in Equipments A/c)
01-Mar-20X1	Depreciation A/c	13000		(100000+30000)*10%
	To Equipment A/c		13000
	(Depreciation recorded at year end on total equipments)