The following is a list of financial statement items from the records of Marshall Corporation as at 31 December 2008. Prepaid Insurance $ 12,750 Prepaid Rent $ 18,000 Interest Receivable 0 Salaries Payable 0 Unearned fees $ 30,000 Interest Income $ 10,000
The following is a list of financial statement items from the records of Marshall Corporation as at 31 December 2008.
Prepaid Insurance | $ 12,750 |
Prepaid Rent | $ 18,000 |
Interest Receivable | 0 |
Salaries Payable | 0 |
Unearned fees | $ 30,000 |
Interest Income | $ 10,000 |
Additional information includes the following:
(a) The insurance policy indicates that on 31 December 2008, only 5 months remain on the 24 months policy that originally cost $18,000.
(b) Marshall has note receivable with $2,500 of interest due from a customer on 1 January 2009.
(c) The accounting records show that one-third of the fees paid in advance by a customer on 1 July 2008 has now been earned.
(d) The company purchased $18,000 of prepaid rent for 9 months on 1 August 2008.
(e) At year end, Marshal owed $7,000 worth of salaries to employee for work done in December 2008. The next payday is 5 January 2009.
You are required to show:
• Adjusting entries that must be made prior to the preparation of the financial statements for the year ended 31 December 2008.
• T-accounts for the relevant accounts and post the journal entries to each account.
• For the account used in the problem, calculate the balances that would be shown on Marshall financial statements for the year ended 31 December 2008. (show your workings)
Homework Answers
| Adjusting entries: | ||||||
| Ref. | Particulars | Debit | Credit | |||
| (a) | Insurance expense | (Note:1) | 9000 | |||
| Prepaid insurance | 9000 | |||||
| (Insurance expired) | ||||||
| (b) | Interest receivable | 2500 | ||||
| Interest income | 2500 | |||||
| (Interest accrued) | ||||||
| (c ) | Unearned fees | (30000/3) | 10000 | |||
| Service revenue | 10000 | |||||
| (Fees earned during the year) | ||||||
| (d) | Rent expense | (18000/9)*5 | 10000 | |||
| Prepaid rent | 10000 | |||||
| (Rent expired for Aug to Dec-5 months) | ||||||
| (e ) | Salaries expense | 7000 | ||||
| Salaries payable | 7000 | |||||
| (Salaries owed) |
| Note:1 | |
| Inurance expense originally paid for 24 months=$ 18000 | |
| Insurance expense per month=18000/24=$ 750 | |
| As on Dec 31,2008, only 5 months remain on the 24 months policy | |
| Hence,insurance expense for 12 months expired in 2008=12*750=$ 9000 |
| Prepaid insurance | Prepaid rent | |||||||
| Ref. | Debit | Ref. | Credit | Ref. | Debit | Ref. | Credit | |
| Bal. | 12750 | (a) | 9000 | Bal. | 18000 | (d) | 10000 | |
| 12750 | 9000 | 18000 | 10000 | |||||
| Bal. | 3750 | Bal. | 8000 | |||||
| Interest receivable | Salaries payable | |||||||
| Ref. | Debit | Ref. | Credit | Ref. | Debit | Ref. | Credit | |
| (b) | 2500 | (e ) | 7000 | |||||
| Unearned fees | Interest income | |||||||
| Ref. | Debit | Ref. | Credit | Ref. | Debit | Ref. | Credit | |
| (c ) | 10000 | Bal. | 30000 | Bal. | 10000 | |||
| 10000 | 30000 | (b) | 2500 | |||||
| Bal. | 20000 | 0 | 12500 | |||||
| Bal. | 12500 | |||||||
| Service revenue | Insurance expense | |||||||
| Ref. | Debit | Ref. | Credit | Ref. | Debit | Ref. | Credit | |
| (c ) | 10000 | (a) | 9000 | |||||
| Rent expense | Salaries expense | |||||||
| Ref. | Debit | Ref. | Credit | Ref. | Debit | Ref. | Credit | |
| (d) | 10000 | (e ) | 7000 |
| Balances: | ||
| $ | ||
| Prepaid insurance | 3750 | |
| Prepaid rent | 8000 | |
| Interest receivable | 2500 | |
| Salaries payable | 7000 | |
| Unearned fees | 20000 | |
| Interest income | 12500 |
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