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Adjusting and Reversing Entries

Problem II ? Adjusting and Reversing Entries.
The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2004:
Cash $ 32,690
Short-term Investment 70,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Merchandise Inventory 54,720
Prepaid Rent 30,000
Plant and Equipment 156,000
Accumulated Depreciation 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales 218,400
Cost of Goods Sold 154,400
Transportation-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 18,000
Miscellaneous Expense 890
Insurance Expense 7,450
$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, 2003;
Policy 2, original cost of $3,600, 3-yr. term, taken out on Oct. 1, 2004;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2004.

2. On September 30, 2004, Alt received $18,000 rent from its lessee for an eighteen month lease beginning on that date.

3. 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, 2003, the balance of the Plant and Equipment account was $260,000.

4. On December 28, 2004, the bookkeeper incorrectly credited sales for a receipt on account in the amount of $10,000.

5. At December 31, 2004, salaries accrued but unpaid were $4,200.

6. Alt estimates that 2% of sales will become uncollectible.

7. On August 1, 2004, Alt purchased, as a short-term investment, 70 $1,000, 9% bonds of Allen Corp. at par. The bonds mature on August 1, 2005. Interest payment dates are July 31 and January 31.

8. On April 30, 2004, Alt rented a warehouse for $2,500 per month, paying $30,000 in advance.

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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Solution Preview

Problem II ? Adjusting and Reversing Entries.

The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2004:
Cash $ 32,690
Short-term Investment 70,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Merchandise Inventory 54,720
Prepaid Rent 30,000
Plant and Equipment 156,000
Accumulated Depreciation 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales 218,400
Cost of Goods Sold 154,400
Transportation-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 18,000
Miscellaneous Expense 890
Insurance Expense 7,450
$620,190 $620,190
Additional Data:

Instructions
(a) Record the necessary correcting and adjusting entries.

1. The balance in the ...

Solution Summary

This solution is comprised of a detailed explanation to record the necessary correcting and adjusting entries and indicate which of the adjusting entries may be reversed at the beginning of the next accounting period.

$2.19