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    Adjusting Entries

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    A. On December 31, the adjusted trial balance of Garg Employment Agency shows the following selected data.
    Accounts $24,000 Commission $92,000
    Receivable Revenue
    Interest 7,800 Interest Payable 1,500
    Expense
    Analysis shows that adjusting entries made to (1) accrue $4,200 of commission revenue and (2) accrue $1,500 interest expense.
    Instructions:
    Prepare the closing entries for the temporary accounts at December 31.
    Prepare the reversing entries on January 1.
    Post the entries in (a) and (b). Rule and balance the accounts. (Use T accounts)
    Post the entries to record (1) the collection of the accrued commissions on January 10 and (2) the payment of all interest due ($2,700) on January 15.
    Post the entries in (d) to the temporary accounts.

    b. Problem P4-1A - Prepare a worksheet, financial statements, and adjusting and closing entries.
    The trial balance columns of the work sheet for Undercover Roofing, Inc. at March 31, 2006, are as follows.
    Undercover Roofing, Inc.
    Work Sheet
    For the month ended March 31, 2006
    Trial Balance
    Account Titles Dr. Cr.
    Cash 2500
    Accounts Receivable 1800
    Roofing Supplies 1100
    Equipment 6000
    Accumulated Depreciation 1200
    Equipment
    Accounts Payable 1400
    Unearned Revenue 300
    Common Stock 5000
    Retained Earnings 2000
    Dividends 600
    Service Revenue 3000
    Salaries Expense 700
    Miscellaneous Expense 200
    12900 12900

    Other Data:
    1. A physical count reveals only $140 of roofing supplies on hand.
    2. Depreciation for March is $200.
    3. Unearned revenue amounted $130 after adjustment on March 31.
    4. Accrued salaries are $350.

    Instructions:
    a. Enter the trial balance on a work sheet and complete the work sheet.
    (a)adjusted trial balance $13,450
    b. Prepare an income statement and a retained earnings statement for the month of March and a classified balance sheet at March 31. No additional issuances of stock occurred in March.
    (b) net income $9760
    Total assets $9040
    C. Journalize the adjusting entries from the adjustments columns of the work sheet.
    d. Journalize the closing entries from the financial statement columns of the work sheet.

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    Solution Preview

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    A. Prepare the closing entries for the temporary accounts in December 31.
    The temporary accounts are closed to the income summary account
    The temporary accounts are the commission revenue and interest expense ( all income statement accounts are temporary accounts)

    Dec. 31 Commission Revenue .............................. 92,000
    Income Summary .............................. 92,000
    31 Income Summary...................................... 7,800
    Interest Expense ............................... 7,800

    B. Prepare the reversing entries on January 1.

    The reversing entries would be made for the adjusting entries that were made. We reverse the adjusting entries so that when
    the transaction actually happens it can be recorded.

    Jan. 1 Commission Revenue .............................. 4,200
    Accounts Receivable.............................. 4,200
    1 Interest Payable ........................................ 1,500
    Interest Expense .................................... 1,500

    C. Post the entries in (a) and (b). Rule and balance the accounts (Use T accounts).

    Accounts Receivable
    Dec. 31 bal. 19,800
    31 Adjusting 4,200 When the commission revenue is accrued, ...

    Solution Summary

    The solution explains the adjusting entries and the preparation of financial statements

    $2.19