The following information may require additional entries to be entered into the
ID: 2466480 • Letter: T
Question
The following information may require additional entries to be entered into the accounting records:
a. Isaiah Corporation paid $1800 for two months rent in advance on December 1, 2016. The company was able to obtain an excellent rental rate due to the fact that they have a very good credit rating. Rent for other companies in the same geographic area average $2300 per month.
b. Specialized equipment was purchased by the corporation for $15,000. This equipment is estimated to be serviceable for three years, after which it will be sold for $2400. It was purchased on December 13, 2016. For depreciation calculation purposes, Isaiah Corporation follows the standard practice of recording all purchases as of the beginning of the month if purchased before the 16th of the month. Isaiah uses the straight-line method of estimating depreciation.
c. Isaiah Corporation has two employees who each earn $100 a day and work a five-day workweek from Monday through Friday. They are paid weekly every Friday. This year, December 31st falls on a Wednesday.
d. The company rents out office space because it has more rooms than necessary for its own operations in the building it rents. Isaiah Corporation currently rents a small office space to an aspiring lawyer for $100 per month, payable at the end of each month. The tenant paid Isaiah Corporation $1000 for ten months rent in advance to lock in on an incredibly good rental price for the office. His check for the $1000 was given to Isaiah Corporation on November 1, 2016 and cleared the bank on the same day.
e. During the year, Isaiah Corporation issued a promissory note for $5000 payable to Stoney, Incorporated. The note is a nine month note which carries a face rate of 6.24%. As of December 31, 2016, $50 of interest have accrued on the note.
f. During the year, Isaiah Corporation made a number of supply purchases. Its first purchase was for $452. Its next purchase totaled $627 and it’s last purchase of the year for supplies in December was for $121. At year-end, December 31, 2016, employees reported a total of $180 of supplies still on hand in the supplies closet after a detailed inventory was taken.
Explanation / Answer
a. On 1st December, 2016 the company has paid advance rent for two months @ $1,800 per month. 1st Dec. 2016 Prepaid Rent Account $ 3,600 Cash Account $ 3,600 (Being rent in advance for two months paid) b. The journal entry for purchase of equipment and depreciation is as under: The equipment purchased on 13th December for $15,000. The depreciation on equipment is calculated as under: Estimated life of an asset=3years Scrap value of equipment=$2,400 Depreciation on equipment= ($15,000-$2,400)/3years $ 4,200 Depreciation on equipment for the month of December would be $4,200/12 $350 31st Dec. 2106 Depreciation on Equipment $ 350 Accumulated Depreciation $350 (Being depreciation on equipment recorded for the month of December) c. The journal entry for wages for three days that is Monday to Wednesday at the rate of $100 per day is as under: 31st Dec. 2016 Salaries expenses $300 Salaries payable $300 (Being salaries for 3 days is recorded at the end of the year) d. The advance rent for the portion of building received by the company for 10months of $1,000. 1st Nov. 2016 Bank $ 1,000 Advance Rent $1,000 (Being advance rent received for 10 months) e. The journal entry for interest on notes payable of $50 is due on 31st December 2016 is as under: 31st Dec. 2016 Interest $50 Interest Payable $50 (Being interest on notest payable due) f. The journal entry for inventory on hand of supplies of $180 at the end of the year is as under: The total purchases of supplies during the year is of $1,200. 1st Purchase $452 2nd Purchase $627 On Dec $121 Total $1,200 On hand ($180) Used $1,020 Therefore we will pass journal entry for $1,020 for usage of supplies to reduce the balance of supplies account to $180 at the end of the year. 31st Dec. 2016 Supplies Expenses $1,020 Supplies $1,020 (Being supplies used during the year)
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