sample problem chapter 13 journalizing adjusting and reversing entries. the data below concerns...

Sample Problem

Chapter 13

Journalizing adjusting and reversing entries.

The data below concerns adjustments to be made at Vaughn Company.INSTRUCTIONS1.Record the adjusting entries in the general journal as of December 31, 2007. Use 25 as the first journal page number. Include descriptions.

ADJUSTMENTSa.On October 1, 2007, the firm signed a lease for a warehouse and paid rent of $17,700 in advance for a six-month period. b.On December 31, 2007, an inventory of supplies showed that items costing $1,840 were on hand. The balance of the Supplies account was $11,120. c.A depreciation schedule for the firm’s equipment shows that a total of $8,200 should be charged off as depreciation for 2007. d.On December 31, 2007, the firm owed salaries of $4,400 that will not be paid until January 2008. e.On December 31, 2007, the firm owed the employer’s social security (6.2 percent) and Medicare (1.45 percent) taxes on all accrued salaries. f.On September 1, 2007, the firm received a five-month, 8 percent note for $4,500 from a customer with an overdue balance.

Analyze: After the adjusting entries have been posted, what is the balance of the Prepaid Rent account on January 1, 2008?

a) On October 1, 2007, the firm signed a lease for a warehouse and paid rent of $17,700 in advance for a six month period.

Adjusting entry:

Rent expense 8,850

Prepaid rent 8,850

17,700/6 = 2,950 2,950 x 3 = 8,850

b) On December 31, 2007, an inventory of supplies showed that items costing $1,840 were on hand. The balance of the Supplies account

was $11,120

Adjusting entry:

Supplies expense 9,280

Supplies 9,280

11,120 – 1,840 = 9,280

c) A depreciation schedule for the firm’s equipment shows that a total of $8,200 should be charged off as depreciation for 2007

Adjusting entry:

Depreciation expense – equipment 8,200

Accumulated depreciation – equipment 8,200

d) On December 31, 2007, the firm owed salaries of $4,400 that will not be paid until January, 2008

Adjusting entry:

Salaries expense 4,400

Salaries payable 4,400

e) On December 31, 2007, the firm owed the employer’s social security (6.2%) and Medicare (1.45%) taxes on all accrued salaries.

Adjusting entry:

Payroll tax expense 336.60

Social Security tax payable272.80

Medicare tax payable 63.80

f) On September 1, 2007, the firm received a five month, 8% note for $4,500 from a customer with an overdue balance.

Adjusting entry:

Interest receivable 120

Interest income 120

4500 x 8% x 4/12 = 120