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    Adjusting entries and balance sheet classification

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    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
    Cash 150,000
    Common stock 60,000
    Equipment 840,000
    Prepaid insurance 30,000
    Inventory 250,000
    Prepaid rent 140,000
    Retained earnings 130,000
    Salaries and wages expense 328,000
    Sales 2,000,000

    You are to complete each of the following tasks.

    Part A
    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.

    Part B
    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

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    Solution Summary

    The solution explains how the prepare adjusting entries and also provides the balance sheet classification of some items.