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    Adjusting entries and classification of accounts

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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 Preview

    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.

    The accounting ...

    Solution Summary

    The solution explains the adjusting entries and the account classification of the given transactions

    $2.49

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