X Company prepares monthly financial statements. The following transactions occu
ID: 2598683 • Letter: X
Question
X Company prepares monthly financial statements. The following transactions occurred during January:
On January 1, a one-year store rental lease was signed for a total of $44,400, and rent for the first 3 months was paid in advance.
On January 1, equipment was purchased for $60,000 with a downpayment of $6,000 and a note for the remainder. The note along with annual interest of 7% was due in a year. The estimated life of the equipment is 10 years with a salvage value of $6,000.
Daily wages are $1,700 and are paid every Friday. The last day in January was a Tuesday.
8. The required adjusting entries on January 31 decreased net income by a total of... (and the answer 7865 is incorrect)
Explanation / Answer
First adjusting entry will be made to record rent expense in respect the store lease.
Rent expense for the month of January = $44,400/12 = $3,700
Second adjusting entry will be prepared to accrue interest expense on the note payable.
Interest expense = $54,000 x 7% x 1/12 = $315
Third adjusting entry will be prepared to record depreciation expense for January in relation to the equipment.
Depreciation expense = ($60,000-$6,000)/10 x (1/12)= $450
Forth adjusting entry will be prepared to record accrued salaries and wages expense at the end of January.
Salaries and wages expense = $1,700 x 2 = $3,400
Therefore,
Total expense recorded through adjusting entries at the end of January = 3,700 + 315 + 450 + 3,400 = $7,865
The correct answer is $7,865. There cannot be any other correct answer.
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