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Preparation of Adjusting Entries: Wright, Allen and Whitni

Please see the attached files. The second file contains all 3 problems.

Problem 2-35 (page 80-81)

Adjusting Entries
On December 31, Wright Company noted the following transactions that occurred during 2008, some or all of which might require adjustment to the books.

(a) Payment of $3,100 to suppliers was made for purchases on account during the year and was not recorded.
(b) Building and land were purchased on January 2 for $210,000. The building's fair market value was $150,000 at the time or purchase. The building is being depreciated over a 30-year life using the straight-line method, assuming no salvage value.
(c) Of the $40,000 in Accounts Receivables, 5% is estimated to be uncollectible. Currently Allowance for Bad Debts shows a debit balance of $350.
(d) On August 1, $60,000 was loaned to a customer on a 12-month note with interest at an annual rate of 12%.
(e) During 2008, Wright received $12,500 in advance for services, 80% of which will be performed in 2009. The $12,500 was credited to sales revenue.
(f) The interest expense account was debited for all interest charges incurred during the year and shows a balance of $1,400. However, of this amount, $500 represents a discount on a 60-day note payable, due January 30, 2009.

Instructions:

1. Give the necessary adjusting entries to bring the books up to date.
2. Indicate the net change in income as a result of the foregoing adjustments.

Problem 2-37 (page 81-82)

Adjusting Entries
The bookkeeper for Allen Wholesale Electric Co. records all revenue and expense items in nominal accounts during the period. The following balances, among others, are listed on the trial balance at the end of the fiscal period, December 31, 2008, before accounts have been adjusted:

Account Receivable........................................................ $148,000
Allowance for Bad Debts................................................. (3,000)
Interest Receivable......................................................... 2,300
Discount on Notes Payable................................................ 400
Prepaid Real Estate and Personal Property Tax........................ 1,700
Salaries and Wages Payable.............................................. (5,200)
Discount on Notes Receivable............................................ (2,600)
Unearned Rent Revenue................................................... (3,300)

Inspection of the company's records reveals the following as of December 31, 2008:

(a) Uncollectable accounts are estimated at 4% of the accounts receivable balance.
(b) The accrued interest on investments totals $2,900.
(c) The company borrows cash by discounting its own notes at the bank. Discounts on notes payable at the end of 2008 are $1,100.
(d) Prepaid real estate and personal property taxes are $1,700, the same as at the end of 2007.
(e) Accrued salaries and wages are $6,700.
(f) The company accepts notes from customers, giving its customers credit for the face of the note less a charge for interest. At the end of each period, any interest applicable to the surrounding period is reported as a discount. Discounts on notes receivable at the end of 2008 are $1,800.
(g) Part of the company's properties had been sublet on September 15, 2007, at a rental of $2,500 per month. The arrangement was terminated at the end of one year.

Instructions: Give the adjusting entries required to bring the books up to date.

Problem 2-42 (page 85-86)

Preparation of Work Sheet and Adjusting and Closing Entries
The following account balances are taken from the general ledger of Whitni Corporation on
December 31, 2008, the end of its fiscal year. The corporation was organized January 2, 2002.

Cash........................................................................ $40,250
Notes Receivable......................................................... 16,500
Accounts Receivable..................................................... 63,000
Allowance for Bad Debts (credit balance)............................ 650
Inventory, December 31, 2008.......................................... 94,700
Land........................................................................ 80,000
Buildings.................................................................. 247,600
Accumulated Depreciation-Buildings................................. 18,000
Furniture and Fixtures................................................... 15,000
Accumulated Depreciation-Furniture and Fixtures.................. 9,000
Notes Payable............................................................. 18,000
Accounts Payable......................................................... 72,700
Common Stock, $100 par................................................ 240,000
Retained Earnings......................................................... 129,125
Sales........................................................................ 760,000
Sales Returns and Allowances.......................................... 17,000
Cost of Goods Sold....................................................... 465,800
Utilities Expense.......................................................... 16,700
Property Tax Expense.................................................... 10,200
Salaries and Wages Expense............................................ 89,000
Sales Commissions Expense............................................ 73,925
Insurance Expense....................................................... 18,000
Interest Revenue.......................................................... 2,600
Interest Expense.......................................................... 2,400

Data for adjustments at December 31, 2008, are as follows:

(a) Depreciation (to nearest month for additions): furniture and fixtures, 10%; buildings, 4%.
(b) Additions to the buildings costing $150,000 were completed June 30, 2008.
(c) Allowance for Bad Debts is to be increased to a balance of $2,500.
(d) Accrued expenses: sales commissions, $700; interest on notes payable, $45; property taxes, $6,000.
(e) Prepaid expenses; insurance, $3,200.
(f) Accrued revenue: interest on notes receivable, $750.
(g) The following information is also to be recorded:
1. On December 30, the board of directors declared a quarterly dividend of $1.50 per share on common stock, payable January 25, 2009, to stockholders of record January 15, 2009.
2. Income taxes for 2008 are estimated at $15,000.
3. The only charges to Retained Earnings during the year resulted from the declaration of the regular quarterly dividends.

Instructions:

1. Prepare on 8-column spreadsheet. There should be a pair of columns each for trial balance, adjustment, income statement, and balance sheet.
2. Prepare all the journal entries necessary to record the effects of the foregoing information and to adjust and close the books of the corporation.

Attachments

Solution Preview

See attached Excel File.

Debit Credit

a. Accounts payable 3,100
Cash 3,100
To correct for a payment on accounts payable which was not not recorded at time
of payment.

b. Land 50,000
Building 160,000
Depreciation 5,333
Accumulated Depreciation 5,333
Cash 210,000
To record the purchase of land and building plus the depreciation for the current year

c. Bad Debts 2,350
Allowance for Bad Debts 2,350
To adjust the allowance account to equal 5% of accounts receivable of $2000

d. Accrued Interest Receivable 3,000
Interest Income 3,000
To accrue interest on note receivable for 5 months x $60,000 x 12%

e. Sales Revenue 10,000
Deferred sales revenue 10,000
To adjust the unearned portion of an advance received

f. Note payable 500
Interest expense 500
To reverse a discount to be taken on a note due in January 2009.
234,283 234,283

Notes about entries:
a. The assumption is that this omission was discovered in reconciling cash or accounts payable at year end, and that the invoice has already ...

Solution Summary

The solution presents three problems to understand adjusting entries and closing entries. All the journal entries include descriptions and some additional explanations at times.

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