The following list of accounts and their balances represents the unadjusted tria
ID: 2539162 • Letter: T
Question
The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2018:
Additional Data:
The balance in the Insurance Expense account contains the premium costs of three policies:
Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2017;
Policy 2, original cost of $10,800, 3-yr. term, taken out on Oct. 1, 2018;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2018.
On September 30, 2018, Alt received $21,600 rent from its lessee for an eighteen month lease beginning on that date.
The regular rate of depreciation is 8% per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no purchases during the year. On December 31, 2017, the balance of the Plant and Equipment account was $220,000.
On December 28, 2018, the bookkeeper incorrectly credited Sales Revenue for a receipt on account in the amount of $20,000.
At December 31, 2018, salaries and wages accrued but unpaid were $4,200.
Alt estimates that 2% of gross accounts receivable will become uncollectible.
On August 1, 2018, Alt purchased, as a short-term investment, 60 $1,000, 5% bonds of Allen Corp. at par. The bonds mature on August 1, 2019. Interest payment dates are July 31 and January 31.
On April 30, 2018, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance.
Instructions
Record the necessary correcting and adjusting entries.
Indicate which of the adjusting entries may be reversed at the beginning of the next accounting period.
Cash $25,490 Equity Investments (trading) $60,000 Accounts Receivable $69,000 Allowance for Doubtful Accounts $500 Inventory $54,720 Prepaid Rent $36,000 Plant Assets $160,000 Accumulated Depreciation-Plant Assets $14,740 Accounts Payable $11,370 Bonds Payable $90,000 Common Stock $170,000 Retained Earnings $97,180 Sales Revenue $214,800 Cost of Goods Sold $154,400 Freight-Out $11,000 Salaries and Wages Expense $32,000 Interest Expense $2,040 Rent Revenue $21,600 Miscellaneous Expense $890 Insurance Expense $14,650 $620,190 $620,190Explanation / Answer
1.
Working:
2. Adjusting entries for accrued revenues and expenses may be reversed at the beginning of the next accounting period. Adjusting entries numbered 1, 2, 4, 5, and 7 may be reversed. Entries 3 and 6 which pertain to depreciation and allowance respectively are never reversed. Entry 8 is also not reversed since the asset method was used for recording the same and not the expense method.
Date Account Titles and Explanation Debit Credit Dec. 31, 2018 1 Prepaid insurance 9900 Insurance expense 9900 (To record prepaid insurance) 2 Rent revenue ($21600 x 15/18) 18000 Unearned rent revenue 18000 (To record unearned rent revenue) 3 Depreciation expense [(160000 x 8%)+($60000 x 4%)] 15200 Accumulated depreciation-Plant assets 15200 (To record depreciation on plant assets) 4 Sales revenue 20000 Unearned revenue 20000 (To record unearned revenue) 5 Salaries and wages expense 4200 Salaries and wages payable 4200 (To record salaries and wages accrued) 6 Bad debt expense [($69000 x 2%) - $500] 880 Allowance for doubtful accounts 880 (To record bad debt expense) 7 Interest receivable 1250 Interest revenue ($60000 x 5% x 5/12) 1250 (To record interest accrued on investment) 8 Rent expense ($3000 x 8) 24000 Prepaid rent 24000 (To record rent expense)Related Questions
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