Part 3. Adjusting entries Please help Cheeky Cheeses, Inc. prepare adjusting jou

Question

Part 3. Adjusting entries Please help Cheeky Cheeses, Inc. prepare adjusting journal entries that need to be recorded on December 31, 2018 based on below information. Cheeky Cheeses purchased a delivery truck on January 1, 2018 for $20,000. The truck is expected to last 4 years with no residual value. Cheeky Cheeses borrowed a four-year note of $60,000 on April 1, 2017. The note requires the company to pay 1% interest every six months. Cheeky Cheeses has made a. b. al every interest payment on time. Cheeky Cheeses prepaid a two-year rent of $36,000 for a new factory on October 1, 2018 and immediately started using the factory Cheeky Cheeses had $1,500 in supplies on December 31, 2017. The company bought $9,000 of supplies during 2018. Based on a physical count of supplies on December 31, 2018, the company still has $3,000 in supplies. c. d. e. Cheeky Cheeses pays employee wages with two equal cash payments on the 1st and 16h of every month. The monthly wages expense is $12,000. (Please put the question number (a, b., c., d., e.) in the # column.)

Explanation / Answer

Interest is payable every six months by the company on September 30 and March 31 every year.

So, whule preparing financial statements for the year ended December 31, 2018 , the last interest paid by Cheeky Cheeses Inc. was on September 30, 2018 and the next interest would be payable on March 31, 2019.

So, the interest has accrued for the 3 months of October 2018 to December 2018.

So, it requires an adjustment entry to be made.

Interest accrued = 60000 * 1% * 3 / 6 = $300

Adjusting Entry -

Interest Expense A/C Dr. 300

To Interest Payable A/C 300

i.e Debit Interest Expense by $300 which would be reflected in the Income Statement for the year ended December 31, 2018

And Credit Interest Payable by $300 which would be reflected in the Balance Sheet as on December 31, 2018.

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