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    Adjusting and Reversing Entries

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    The following list of accounts and their balances represents the unadjusted trial balance of Bly Company at December 31, 2007:

    Cash $ 30,890

    Short-term Investment 60,000

    Accounts Receivable 69,000

    Allowance for Doubtful Accounts $ 500

    Merchandise Inventory 54,720

    Prepaid Rent 36,000

    Plant and Equipment 160,000

    Accumulated Depreciation 14,740

    Accounts Payable 11,370

    Bonds Payable 90,000

    Common Stock 170,000

    Retained Earnings 97,180

    Sales 214,800

    Cost of Goods Sold 154,400

    Transportation-Out 11,000

    Salaries and Wages Expense 32,000

    Interest Expense 2,040

    Rent Revenue 21,600

    Miscellaneous Expense 890

    Insurance Expense 9,250

    $620,190 $620,190

    Additional Data:

    1. The balance in the Insurance Expense account contains the premium costs of three policies:

    Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2006;

    Policy 2, original cost of $5,400, 3-yr. term, taken out on Oct. 1, 2007;

    Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2007.

    2. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no purchases during the year. On December 31, 2006, the balance of the Plant and Equipment account was $260,000.

    3. On December 28, 2007, the bookkeeper incorrectly credited sales for a receipt on account in the amount of $10,000.

    4. At December 31, 2007, salaries accrued but unpaid were $4,200.

    5. Bly estimates that 2% of sales will become uncollectible.

    6. On August 1, 2007, Bly purchased, as a short-term investment, 70 $1,000, 9% bonds of Allen Corp. at par. The bonds mature on August 1, 2008. Interest payment dates are July 31 and January 31.

    Instructions

    (a) Record the necessary correcting and adjusting entries.

    (b) Indicate which of the adjusting entries may be reversed at the beginning of the next accounting period.

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    https://brainmass.com/business/journal-entries/adjusting-and-reversing-entries-241526

    Solution Preview

    a)

    1
    Prepaid insurance $4,950
    Insurance expense $4,950
    (Being, insurance premium of Policy 2 pertaining to period after Dec 31, 2007 transferred to repaid insurance account - $5400/36*3)

    Insurance premium - 1 Oct 2007 $5,400
    Period of insurance 36 months
    Period expired up to 31 Dec 2007 3 months ...

    Solution Summary

    The solution examines adjusting and reversing entries for Bly Company. The balances represented as the unadjusted trial balance.

    $2.19

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