A review of the ledger of Felipe Company at December 31, 2012, produces the foll

Question

A review of the ledger of Felipe Company at December 31, 2012, produces the following data pertaining to the preparation of annual adjusting entries.
1. Salaries and Wages Payable $0: There are eight salaried employees. Salaries are paid every Friday for the current week. Six employees receive a salary of $800 each per week, and two employees earn $600 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
2. Unearned Rent Revenue $300,000: The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,000 security deposit that is not refundable until occupancy is terminated. At December 31 the company had the following rental contracts that are paid in full for the entire term of the lease.
Date Term (in months) Monthly Rent Number of Leases
Nov. 1 6 $4,000 5
Dec. 1 6 $7,500 4
3. Prepaid Advertising $13, 200: This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as follows.
Contracts Date Amount Number of Magazine Issues
A650 May 1 $6,000 12
B974 Sept. 1 $7,200 18
The first advertisement runs in the month in which the contract is signed.
4. Notes Payable $80,000: This balance consists of a note for 1 year at an annual interest rate of 8%, dated April 1, 2012.

Questions: Prepare the adjusting entries at December 31, 2012. Show all computations.

Explanation / Answer

1. Salaries and Wages Payable $0: There are eight salaried employees. Salaries are paid every Friday for the current week. Six employees receive a salary of $800 each per week, and two employees earn $600 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December. Calculation: Salaries for 2 days: 6*(800*2/5) + 2*(600*2/5) = 1920 + 480 = $2,400 Debit: Salaries expense 2400 Credit: salaries payable 2400 2. Unearned Rent Revenue $300,000: The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,000 security deposit that is not refundable until occupancy is terminated. At December 31 the company had the following rental contracts that are paid in full for the entire term of the lease. Date Term (in months) Monthly Rent Number of Leases Nov. 1 6 $4,000 5 Dec. 1 6 $7,500 4 Calculation: earned rent = 4,000*2*5 + 7,500*1*4 = 40,000 + 30,000 = 70,000 Debit: unearned rent revenue 70,000 Credit: rent revenue 70,000 3. Prepaid Advertising $13, 200: This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as follows. Contracts Date Amount Number of Magazine Issues A650 May 1 $6,000 12 B974 Sept. 1 $7,200 18 The first advertisement runs in the month in which the contract is signed. Calculation: expired prepaid advertising: 6,000*(8/12) + 7,200*(4/18) = 4000 + 1600 = 5600 Debit: advertising expense 5600 Credit: prepaid advertising 5600 4. Notes Payable $80,000: This balance consists of a note for 1 year at an annual interest rate of 8%, dated April 1, 2012. Calculation: interest expense: 80,000*.08*9/12 = 4800 Debit: Interest expense 4800 Credit: interest payable 4800

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