Hormel Co. follows the practice of recording prepaid expenses and unearned reven
ID: 2435250 • Letter: H
Question
Hormel Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. Hormel's annual accounting period ends on December 31, 2009. The following information concerns the adjusting entries to be recorded as of the date.a. the Office Supplies account started the year with a $2900 balance. During 2009 the company purchased supplies for $11977 which was added to the Office Supplies account. The inventory of supplies available at December 31, 2009 totaled $2552.
b. an analysis of the company's insurance policies provided the following facts:
Policy A-Date of Purchase: April 1, 2008- Months of coverage: 24-Cost:$11640
Policy B-Date of Purchase: April 1, 2009- Months of coverage: 36-Cost:$10440
Policy C-Date of Purchase: August 1, 2009- Months of coverage: 12-Cost:$ 9240
The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost (Year-end adjusting entries for prepaid insurance were properly recorded in all prior years)
c. The company has 15 employees, who earn a total of $1830 in salaries each working day. They are paid each Monday for their work in the five day workweek ending on the previous Friday. Assume that December 31, 2009 is a Tuesday and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2010.
d. The company purchased a building on January 1, 2009. It cost $800,000 and is expected to have a $45000 salvage value at the end of its predicted 40-year life. Annual depreciation is $18875.
e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3000 per month, starting on November 1, 2009. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However the tenant has not paid the December rent. The company has worked out an agreement with the tenant who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again.
f. On November 1, the company rented space to another tenant for $2718 per month. The tenant pain five months rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.
REQUIRED
1. Use the information to prepare adjusting entries as of December 31, 2009.
Explanation / Answer
1. Prepare journal entries to record the first subsequent cash transaction in 2010 fr parts c and e. (a) the Office Supplies account started the year with a $2900 balance. During 2009 the company purchased supplies for $11977 which was added to the Office Supplies account. The inventory of supplies available at December 31, 2009 totaled $2552. Office Supplies Expense $12,325 Office supplies $12,325 (To record consumption of office supplies) (b) b. an analysis of the company's insurance policies provided the following facts: Policy A-Date of Purchase: April 1, 2008- Months of coverage: 24-Cost:$11640 Policy B-Date of Purchase: April 1, 2009- Months of coverage: 36-Cost:$10440 Policy C-Date of Purchase: August 1, 2009- Months of coverage: 12-Cost:$ 9240 The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost (Year-end adjusting entries for prepaid insurance were properly recorded in all prior years) Insurance expense $12,280 Prepaid expense $12,280 (To record insurance expense for the year) (c) The company has 15 employees, who earn a total of $1830 in salaries each working day. They are paid each Monday for their work in the five day workweek ending on the previous Friday. Assume that December 31, 2009 is a Tuesday and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2010. Salaries expense $3660 Salaries payable $3,660 (To record Salaries payable for two days) Entry on January 6, 2010 Salary payable $3,660 Salary expense $5,490 Cash $9,150 (To record payment of Salary for the week from 30th December to 3rd January) (d) The company purchased a building on January 1, 2009. It cost $800,000 and is expected to have a $45000 salvage value at the end of its predicted 40-year life. Annual depreciation is $18875. Depreciation expense - Building $18,875 Accumulated Depreciation- building $18,875 (To record the depreciation expense on building) (e) Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3000 per month, starting on November 1, 2009. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However the tenant has not paid the December rent. The company has worked out an agreement with the tenant who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again. Accrued Rent $3,000 Rent revenue $3,000 (To record rent revenue due for December) Entry on January 15, 2010 Cash 6,000 Accrued rent $3,000 Rent revenue $3,000 (To record receipt of rent for the month December and January) f. On November 1, the company rented space to another tenant for $2718 per month. The tenant f. (f) On November 1, the company rented space to another tenant for $2718 per month. The tenant pain five months rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account. Unearned rent $5,436 Rent revenue $5,436 (To record adjustment rent revenue for Nov. and Dec. in advance)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.