Problem 2 : CP7 on page 376, but instead of following the Instructions in the te
ID: 2341505 • Letter: P
Question
Problem 2:
CP7 on page 376, but instead of following the Instructions in the text, prepare the following:
Ignore GST and income tax. Prepare journal entries for the December transactions (you may omit narrations), incorporating the following additional information:
The perpetual inventory system and gross purchases method is followed.
The bookkeeper forgot to record a transfer of land to the business from one of the shareholders. The fair market value of the land (considered to be part of Property, Plant, & Equipment) was assessed at $100,000, and the business signed a two-year Notes Payable for that amount.
Follow instruction (c) in the textbook, but prepare the suggested journal entries prior to preparing the bank reconciliation, as you have learned in this course. You may assume that the NSF check was not redeposited.
Prepare the adjusting journal entries suggested by the Adjustment data in the text. Consider the following additional errors by the bookkeeper:
Prior to collection of the Notes Receivable, the bookkeeper had forgotten to accrue $20 of interest on the Notes Receivable. This will be received in January 2018.
The bookkeeper also forgot to accrue one month of interest on the Notes Payable (see 1) above), which has a 12% annual interest rate. The interest is payable semi-annually.
Incorporating all of the above, prepare a Statement of Comprehensive Income for December and a Balance Sheet as at December 31, 3017, both in the form and format prescribed in this course.
Explanation / Answer
Adjusting Journal entries Land $100,000 Notes Payable $100,000 (To record transfer of land) Interest receivable $20 Interest Revenue $20 (To accrue interest revenue to be received in Jan 2018) Interest expense $1,000 Interest payable $1,000 (To record interest expense for 1 month on notes payable) ($100000 x 12% x 1/12 = $1000 )
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