Lexi Corporation adjusts its accounts only at year-end. Prior to making their ye

Question

Lexi Corporation adjusts its accounts only at year-end.  Prior to making their year-end adjustments, Lexi had a Net Income of $65,000.   The following information is available as a source for preparing the adjusting entries at December 31, 2010:

 

1.  Lexi purchased computer equipment two years ago for $15,000.  The equipment has

        an estimated useful life of five years and an estimated salvage value of $500.

 

2.  The Office Supply account had a balance of $3,600 on January 1, 2010.  During

        2010, Lexi added $17,600 to the account for purchases of office supplies during the

        year.  A count of supplies on had at the end of December 2010 indicated a balance

        of  $1,850.

 

3.  On August 1, 2010, Lexi received $24,000 from a customer paid in advance and

        credited to Unearned Revenue.  The revenue will be earned evenly from Lexi over a

         six month period beginning August 1.

 

 

4.  The tax rate for the income is 30%.  No income taxes have been recorded as of year-

      end.  (Remember, net income before these adjustments was $65,000.)

 

For each of the above numbered items, prepare the necessary adjusting journal entry

      in good form.  For any item requiring a computation, show your computation under

      the entry.  If no adjusting entry is required, explain why.

  Example:  0  If a company accrued its’ rent expense of $2,000 at year-end, then they would make the following AJE and show effects:

 

      Rent Expense   +E, -SE                  2,000

          Rent Expense Payable   +L                             2,000

Explanation / Answer

1.          Here, No entry.                         Because, here we dont have any depreciation expenses. If there is any depreciation expenses then, adjusted entry will be,                                     Depreciation expense                                                                      Accumulated depreciation 2.    Total supplies upto during the year is = $3,600 + $17,600                                                                   = $21,200       But the at the Dec 2010 the supplies balance is $1,850.                               Therefoe Supplies consumed is = $21,200 - $1,850                                                                                     = $19,350             This comsumed balance is noting but supplies expense during the year. Journal entry is as follows.                                                                                      Debit                  Credit                         Supplies expenses(+E, -SE)              $19,350                                  Supplies(+A)                                                            $19,350                       (To record supplie used during the year) 3.                                                                                                       Debit                        Credit                      Unearned service revnue(L-)                                $24,000                                     Service revenue  (R+)                                                             $24,000                   (To rececord service revenue that was collected in advance) 4.           Income tax is 30% on net income, therefore the income tax expense is = 0.3*$65,000                                                                                                                                    = $19,500                            Income tax expense(E+)                                          $19,500                                        Tax payable (L+)                                                                       $19,500                         (To record income tax payable)

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