4. Advertising Expense has a normal balance of $12,000. Included in this amount

Question

4. Advertising Expense has a normal balance of $12,000. Included in this amount is $2,000 paid to the local newspaper for advertising space in their July and August 2017 papers. 5. The last payroll of $3,500 was paid on Friday, June 27, and represented five days of work. No workers worked on the weekend, and June 30 fell on a Monday, on which day all workers worked. The next payroll will be paid in July. 6. At the end of the year, the business had outstanding a long-term loan of $20,000 with an interest rate of 7%. Interest only payments take place semi- annually, every 1 April and 1 October. The last interest payment made by the business was on 1 April 2017, representing interest owing for the previous six months 7. The Services Revenue account has a normal balance of $72,000. Included in this amount is $4,300 for services to be provided in July 2017. 8. The Equipment account has a balance of $20,000, and the Accumulated Depreciation account a balance of $12,000. The equipment was six years old as of the beginning of the current financial year. The straight line method is used 9. The Motor Vehicle account has a balance of $50,000. The vehicle was purchased on 1 January 2017 and has an estimated useful life of 5 years. The straight line method is used 10. No invoice has been received for property taxes, but it is estimated that the unpaid rates at 30 June 2017 were $3,400. Required: Prepare the adjusting journal entries required on 30 June 2017.

Explanation / Answer

Working & Assumptions

1. It is assumed that 30 June 2017 is the end of year for the given organisation.

2. Question is providing only point 4 to 10, so entries for them only provided.

Calculations

Outstanding Payroll

Payroll expenses for a week = $3500

Payroll per day = 3500 / 7 = $500

Days not paid upto June 30 = 2 days (28 to 30 June)

Outstanding Payroll for June = 3 x 500 = $1500

Assumed that pay is also admissble for weekend holidays.

Unpaid Interest

Interest for full year = 20000 x 7% = $1400

Interest for Apr to June (3 Months) = 1400 / 12 x 3 = $350

Depreciation on Equipment

Begining Equipment = 20000

Begining Acc. Dep = 12000

Age @ Begining = 6Years

Depreciation for year BY SLM = 12000 / 6 = $2000

Depreciation on Motor Vehicle

Opening Value = $50000

Useful Life = 5 Years

Used in business during year = 6 Months = Half Year

Dep. for half year by SLM = 50000 / 5 x 1/2 = $5000

Point No. of Question Date Accounts Debit Credit 4 06/30 Prapaid Advertisement Exps. 2000 Advertisement Expenses 2000 (Prapaid Adv Expenses recognized) 5 06/30 Payroll Expenses 1500 Outstanding Payroll Expenses 1500 (Outstanding Payroll Expenses recognized) 6 06/30 Interest A/c 350 Unpaid Interest 350 (Unpaid Interest on loan from April to June recognized) 7 06/30 Service Revenue 4300 Unearned Service Revenue 4300 (Advanced revenue for unearned services recognized) 8 06/30 Depreciation 2000 Accumulated Depreciation on Equipments 2000 (Depreciation on equipments recognized) 9 06/30 Depreciation 5000 Accumulated Depreciation on Motor Vehicle 5000 (Depreciation on vehicle recognised) 10 06/30 Property taxes 3400 Estimated property taxes 3400 (Estimeted expenses on property taxes for the year in recognized in accounts)

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