– Problem – Belanger & Associates, PC, is an engineering firm with offices in se
ID: 2332281 • Letter: #
Question
– Problem –
Belanger & Associates, PC, is an engineering firm with offices in several cities in the Carolinas. Belanger’s fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. For bookkeeping purposes, the company has adopted a policy to record payments and collections in advance into asset and liability accounts, respectively. Belanger’s unadjustedtrial balance at December 31, 2018 is shown below. All accounts have normal-side balances.
Accounts Payable $ 602,715
Accounts Receivable 923,610
Accumulated Depreciation – Buildings 332,105
Accumulated Depreciation – Equipment 269,597
Allowance for Doubtful Accounts 11,832
Advertising Expense 46,739
Buildings 1,382,015
Cash 582,287
Common Stock ($1 par) 196,750
Dividends 152,500
Equipment 793,926
Insurance Expense 77,205
Interest Expense 16,931
Land 253,760
Notes Payable 821,000
Prepaid Insurance 385,104
Property Tax Expense 41,490
Retained Earnings 1,037,500
Salaries and Wages Expense 3,938,920
Service Revenue 5,612,810
Unearned Rent Revenue 17,388
Utilities Expense 307,210
Additional information available at year-end is as follows:
Belanger sometimes leases unused space in its buildings to other businesses. On September 1, 2018, a new tenant signed a 3-year lease and paid the first 9 months’ rent of $17,388 in advance. The lease began on that date and runs through August 31, 2021.
The Notes Payable balance relates to a bank loan obtained in 2017 that is payable in full on March 31, 2023. The loan agreement specifies that Belanger pay interest annually on March 31 at the rate of 6.40%. Belanger’s bookkeeper made the proper entry for the first interest payment, on March 31, 2018. (Hint– Think about the entry Belanger made on the first interest payment date.)
On November 20, 2018, Belanger paid $31,640 for internet ads to run evenly over an 8-month period, starting December 1, 2018. Note – Contrary to the company’s normal practice, Belanger’s bookkeeper recorded the prepayment into the Advertising Expense account. Give the adjusting entry needed when a company uses the expense approach to record a payment in advance.
Belanger performed $182,976 of engineering services for several clients in December 2018 that it has not yet billed, recorded or collected.
In the first week of January 2019, Belanger received bills for December 2018 utilities totaling $22,651. The company paid all of these bills in late January 2019.
Belanger estimates that 8.19% of the 2018 year-end accounts receivable balance will notbe collected.
Belanger purchased its buildings in 2007 and its equipment in 2014. Belanger depreciates its fixed assets according to the straight-line method. For the buildings, it uses estimates of 35 years for the useful life and $275,000 for the salvage value. For the equipment, it uses estimates of 9 years for the useful life and $47,349 for the salvage value.
On June 1, 2018, Belanger purchased a 2-year insurance policy for $385,104 and paid the full cost of the policy in advance. The policy provides coverage through May 31, 2020.
Belanger operates 5 days a week, Mondays through Fridays. Employees are paid each Friday, for hours worked through the previous Friday. On Friday, December 28, 2018, the last pay day in 2018, Belanger paid its employees for hours worked during the week of December 17-21. The employees then worked their regular schedule through the end of the year. Note that Tuesday, December 25 was a paid holiday for all employees. Belanger’s payroll averages $15,720 per day.
The company’s income tax rate for the year is 30%. (Hint– The income tax rate is applied to the company’s income after all revenues and expenses have been considered except for the income tax charge.)
– Instructions –
Complete the following four tasks relating to Belanger & Associates, PC’s accounting process at year-end 2018:
(a) Prepare the adjusting journal entries needed at December 31, 2018.
(b) Prepare an adjustedtrial balance as of December 31, 2018. List the accounts in an appropriate trial balance order.
(c) Prepare the closing journal entries needed at December 31, 2018. Belanger uses an Income Summary account.
(d) Prepare a post-closingtrial balance as of December 31, 2018. List the accounts in an appropriate trial balance order.
Explanation / Answer
Requirement 1:
Requirement 2:
Requirement 3:
Requirement 4:
Date Account Title and Explanation Debit Credit Dec 31 Unearned Rent Revenue ($17,388 × 4 ÷ 9) $7,728 Rent Revenue $7,728 To record rent revenue earned Interest expense (($821,000 × 6.4%) × 9 ÷ 12) $39,408 Interest payable $39,408 To record interest payable Prepaid Advertising ($31,640 × 7 ÷ 8) $27,685 Advertising Expense $27,685 To record Prepaid Advertising Accounts receivable $182,976 Service revenue $182,976 To record service revenue earned Utilities Expense $22,651 Utilities payable $22,651 To record utilities payable Bad Debt Expense (($923,610 × 8.19%) $11,832) $63,812 Allowance for Doubtful Accounts $63,812 To record allowance for doubtful accounts Depreciation expense (($1,382,015 $275,000) ÷ 35 ) $31,629 Accumulated Depreciation – Buildings $31,629 To record depreciation expense on buildings Depreciation expense (($793,926 $47,349) ÷ 9 ) $82,953 Accumulated Depreciation – Equipment $82,953 To record depreciation expense on equipment Insurance expense ($385,104 × 7 ÷ 24) $112,322 Prepaid insurance $112,322 To record insurance expense Salaries and Wages Expense $15,720 × 6) $94,320 Salaries and Wages payable $94,320 To record salaries and wages payable Income tax Expense ($5,803,514 $4,847,905 ) × 30% $286,683 Income tax payable $286,683 To record income tax payableRelated Questions
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