The Jamesway Corporation had the following situations on December 2018. 1. On De

Question

The Jamesway Corporation had the following situations on December 2018. 1. On December 20, 2018, Jamesway received a $4,800 payment from a customer for services to be rendered early in 2019. Service revenue was credited. 2. On December 1, 2018, the company paid a local radio station $3,600 for 40 radio ads that were to be aired, 20 per month, throughout December and January. Prepaid advertising was debited 3. Employee salaries for the month of December totaling $24,000 will be paid on January 7, 2019 4, On August 31, 2018, Jamesway borrowed $50,000 from a local bank. A note was signed with principal and 9% interest to be paid on August 31, 2019 If none of the adjusting journal entries were recorded, would assets, liabilities, and shareholders' equity on the 12/31/18 balance sheet be higher or lower and by how much? Assets by Liabilities by Shareholders' equity

Explanation / Answer

Ans.                 Evaluate of Effect of Transactions

1. Jamesway corporation received $4800 advance for serivce that to be provided in 2019 that means its to be recorded as liability till the company is providing service.

Journal Entry is

                              Cash/Bank A/c          4800

                                To Advance from customer A/c       4800

2. Company paid $3600 for Advertisement for Dec and jan month for 50% expenses is prepaid, that to be recognized as Prepaid assets.

3. Employee salary to be paid in jan 2019 to be recorded as liability for Dec 2018 amt $24000

4. Company borrowed amt $50000 in Aug 2018 , Annual interest rate is 9%, so Aug 2018 to Dec 2018 Accured Interest to be showed as liability along with principal outstanding.

Accured Interest amt (50000X.09)X4/12 = 1500

Total borrowing liability in Dec 2018 = 51500

Effects on assets liability

Assets is Increase by (3600/2)                              = 1800

Increase of cash balance                                       = 41200

                                                                                         43000

Liabilities is increase by (4800+24000+51500) = 80300

Shareholder equity                                                   = NO Effect

Effect in Cash balance

Advance received from customer       =   4800

paid for advt                                            =    (3600)

Borrowed money                                   =    40000

Net increase of cash                            =    41200

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