Question

Thornwood Tile had the following items that require adjusting entries at the end of the year.

a.	Thornwood pays payroll of $180,000 every other Friday for a 2-week period. This year the last payday is Friday, December 26. (Note: The work week is Monday through Friday.)
b.	Thornwood purchased $350,000 of tile on June 1 with a note payable requiring 12% interest. The interest and principal on this note are due within 1 year. As of December 31, Thornwood had not made any principal or interest payments.
c.	Thornwood’s earned income is $900,000 for the year for tax purposes. Its effective tax rate is 30%. These taxes must be paid by April 15 of next year.

Required:

Prepare the adjusting journal entries to record these transactions at the end of the current year. Prepare the adjusting journal entries to record these transactions at the end of the current year on December 31.

Answer 1

Wages Expense	$   54,000
To Wages Payable		$   54,000	($180,000 * 3 / 10)
(Being provision made for 3 days salary)
Interest Expense	$   24,500
To Interest Payable		$   24,500	($350,000 * 12% * 7/12)
(Being provision made for interest for 7 months)
Income Tax	$ 270,000
To Income Tax Payable		$ 270,000	($900,000 * 30%)
(Being provision made for tax)