The employees of Neal Clothes work Monday through Friday. Every other Friday the

Question

The employees of Neal Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, January 3, Neat Clothes is now preparing financial statements for the year ended December 31. What is the adjusting entry to record salaries at the end of the year? Option a. Option b. Option c. Option d. On September 1, 2015, Gold Magazine sold 400 one-year subscriptions for $90 each, The total amount received was credited to Unearned Revenue. What would be the required adjusting entry at December 31. Option a. Option b. Option c. Option d.

Explanation / Answer

Part 1)

The journal entry would involve a debit to salaries expense and a credit to salaries payable for an amount of $22,400 (which is Option D)

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Explanation:

The total value of salary that will be accrued on 31st December will be for 7 days only instead of 10 days as the pay period ends on 3rd of next year. The total salary accrued on 31st December will, therefore, be $22,400 (32,000*7/10). The remaining 3 days (10 - 7) salary will not be treated as salary due on 31st December.

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Part 2)

The journal entry would involve a debit to unearned revenue and a credit to service revenue for an amount of $12,000 (which is Option D)

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Explanation:

At the end of the year, the adjustment for revenue earned will be made. The total amount of cash received on 1st September is $36,000 (400*90). The total revenue that will be treated as earned during the 4 month period of the current year would be $12,000 (36,000*4/12). The balance of $24,000 (36,000 - 12,000) would continue to appear as a liability (in the name of unearned revenue) at the end of the year.

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