Selected amounts at December 31, 2003 from the Hay and Barnabas Company's information system appear as follows:
Cash paid employees for salaries and wages $300,000
Cash collected from sales customers 1,850,000
Bonds payable 500,000
Common stock 60,000
Prepaid insurance 30,000
Prepaid rent 140,000
Retained earnings 130,000
Salaries and wages expense 328,000
You are to complete each of the following tasks.
There are five adjustments that need to be made before the financial statements can be prepared at year end. Show the effect of each of the following (a - e) on the accounting equation.
a. The equipment (purchased on January 1, 2003) has a useful life of 12 years with no salvage value (Straight-line method is used).
b. Interest accrued on the bonds payable is $20,000 as of December 31, 2003.
c. Unexpired insurance at December 31, 2003 is $7,000.
d. The rent payment of $140,000 covered the four months from December 1, 2003 through March 31, 2004.
e. Salaries and wages of $28,000 were earned but unpaid at December 31, 2003.
Indicate the proper balance sheet classification of each of the preceding 12 financial statement items on the December 31, 2003 balance sheet. If the account title would not appear on the balance sheet, indicate the financial statement on which it would be found.
a. Current assets
b. Property, plant and equipment
c. Current liabilities
d. Long-term liabilities
e. Stockholders' equity
The solution explains how the prepare adjusting entries and also provides the balance sheet classification of some items.