Question

Account                           Trial              Adjustments                  

                                        Balance                                                       

	Dr.	Cr.	Dr.	Cr.
Cash	25
Accounts Rec.	12
Inventory	30
Prepaid Rent	6
Furniture	10
Accumulated Amortization- Furniture		2
Accounts Payable		12
Salary Payable		0
Unearned Revenue		15
Katie Kup, Capital		60
Katie Kup, Withdrawals	2
Sales Revenue		86
Sales Discounts	4
Sales Returns and Allowances	2
Cost of Goods Sold	45
Salary Expense	31
Rent Expense	0
Utilities Expense	8
Amortization Expense- Furniture
	175	175
Net Income/Loss

1. Create any adjusting entries needed from the following additional information:

1. The Prepaid rent account represents six months rent paid October 1, 2011
2. The Furniture was purchased January 1, 2010 and is expected to have a 5 year useful life with no salvage value.
3. The unearned revenue represents a prepayment on February 1, 2011 for merchandise to be delivered over 15 months.
4. The Eatery employs 5 people, each who earn $200 a day and they work Monday to Friday. The year end of December 31, 2011 is on a Friday. The employees have not been paid for the last 5 days.
5. The hydro bill of $3,000 for December was received but not recorded or paid.
6. A new employee has been hired for $150 a day, with a 5 day week, and will start work on January 1, 2012.

Answer 1

Solution

Worksheet showing Trial Balance and Adjustments:

Accounting Worksheet
Account		Trial Balance		Adjustments
	Debit	Credit	Debit	Credit
Cash	$25		$25
Accounts Receivable	$12		$12
Inventory	$30		$30
Prepaid Rent	$6		$3
Furniture	$10		$10
Accumulated Amortization - Furniture		$2		$4
Accounts Payable		$12		$12
Salary Payable		$0		$5
Utilities Payable				$3
Unearned Revenue		$15		$4
Katie Kup, Capital		$60		$60
Katie Kup, Withdrawal	$2		$2
Sales Revenue		$86		$97
Sales Discount	$4		$4
Sales Returns and Allowances	$2		$2
Cost of Goods Sold	$45		$45
Salary Expense	$31		$36
Rent Expense	$0		$3
Utilities Expense	$8		$11
Amortization Expense	$0		$2
Total	$175	$175	$185	$185
Net Income/(Loss)				($6)

Computations: (amount in ‘000s)

1. Rent expense –

Rent prepaid for 6 months

Expired portion, 3 months (Oct 1 – Dec 31) = $6 x 3/6 = $3

Hence rent expense = $3

Prepaid rent = $3

2. Salary payable –

5 employees x $200 x 5 days = $5

Salary expense = $31 + $5 = $36

Salary payable = $5

3. Utilities payable = $3,000

Utilities expense = $8 + $3 = $11

4. Accumulated Amortization -

Annual Amortization expense = $10/5 years = $2

Accumulated amortization = $2 + $2 = $4

5. Unearned Revenue –

Revenue received in advance on Feb 1 for 15 months = $15

Less: earned for 11 months, (Feb 1 – Dec 31) = $15 x 11/15 = $11

Sales revenue = $86 + $11 = $97

Unearned revenue = $15 - $11 = $4

Net income/(loss) –

Sales revenue                                $97

Less:

Sales discount       $4

Sales allowance     $2

Net sales                                        $91

Cost of goods sold            $45

Gross profit           $46

Less: operating expenses:

Salaries expense    $36

Rent expense         $3

Utilities expense    $11

Amortization         $2

Total expenses       $52

Net Income/(Loss)            (6)