I need help with the question P 3-10 The unadjusted trial balance of Imagine Ltd
ID: 2331973 • Letter: I
Question
I need help with the question P 3-10
The unadjusted trial balance of Imagine Ltd. at December 31, 2017, is as follows:
Additional information:
The FV-OCI investment is an investment of 500 shares in Yop Inc., with current market value of $25 per share as of December 31, 2017.
.Prepare the year-end adjusting and correcting entries for December 31, 2017, using the information given. Record the adjusting entry for inventory using a Cost of Goods Sold account.
Debit Credit Cash $10,850 Accounts Receivable 56,500 Allowance for Doubtful Accounts $750 Fair Value - NI Investments 8,600 Inventory 58,000 Prepaid Insurance 2,940 Prepaid Rent 13,200 Fair Value - OCI Investments 14,000 Bond Investment at Amortized Cost 18,000 Land 10,000 Equipment 104,000 Accumulated Depreciation—Equipment 18,000 Accounts Payable 9,310 Bonds Payable 50,000 Common Shares 100,000 Retained Earnings 103,260 Sales Revenue 223,310 Rent Revenue 10,200 Purchases 170,000 Purchase Discounts 2,400 Freight-out 9,000 Freight-in 3,500 Salaries and Wages Expense 31,000 Interest Expense 6,750 Miscellaneous Expense 890 $517,230 $517,230Explanation / Answer
Adjustment and correcting Entries at year end end
1(a)
Rent Revenue A/c Dr 8500
To Lessee a/c(10200*10/12) 8500
(Being rectification and adjustement entry passed)
To the extent of 1700 Rentbrevenue has to bee shown in the current year income and remaing amount of 8500 is treated as current liability
2) Baddebts estimated (56500*7%) 3955
Provision created ( 750)
Net baddebts 3205
Adjustment entry:
Profit&loss a/c Dr 3205
To Baddebts 3205
(being Entry for Baddebts passed)
Rectification Entry:
Sales A/c Dr. 1000
To Account receivable 1000
(Being Rectified Entry Passed)
3.
Inventory A/c (Dr.77000-58000) 19000
To Inventory Change 19000
4. By following Accrual concept following adjustingb rectifiaction entries passed:
Policy A
Taken on st april - 9 months during this year
Totalpremium -1620
Premium for current year - (1320 /24months * 9months) = 495
Policy B:
Premium for current year -(1620/36 months*4months) = 180
total = 695
Adjustment entry
Insurance expense a/c Dr. 695
To Prepaid insurance 695
As a result prepaid insurance a/c balance reduced to the extent of 695
5)Calculation of Deprecition & Entry to be passed:
Opening balance of Eqipment -90000
Acuisition during current year - 14000(104000-90000)
Depreciation - 9700(90000*10% + 14000*7%)
Depreciation A/c Dr. 9700
to Equipment 9700
Profit &loss a/c Dr... 9700
To Depreciation 9700
6. Interest for october -( 50*1000*11%*6/12) - 2750
Interest accrued 3 months (50*1000*11%*3/12)1375
Interest expense A/c Dr 2750
To Cash A/c 2750
Interest ExpenseA/C Dr 1375
To interst accrued 1375
Profit & loss a/c Dr.. 4125
To interest Expense 4125
7. Interest accrued for 5 months -(18*1000*12%*5/12)-900
Interest Accrued A/c Dr. 900
To Profit&loss a/c 900
8. Rent for 7 months(june to Dec) - 1100*7 -7700
Advance rent as on 31st dec -(13200-7700) 5500
Rent Expense A/c Dr 7700
To Prepaid rent A/c 7700
Profit & loss A/c Dr 7700
To Rent expense A/c
9.
Long-term investments are usually carried at cost. However, when
there is a decline, other than temporary, in the value of a long term
investment, the carrying amount is reduced to recognise the decline.
Indicators of the value of an investment are obtained by reference to its
market value, the investee’s assets and results and the expected cash flows
from the investment. The type and extent of the investor’s stake in the
investee are also taken into account. Restrictions on distributions by the
investee or on disposal by the investor may affect the value attributed to the
investment
So No cahnge shouldbe made to current Investment as they should be carried at cost
10.
Current investments should be carried at cost or NRV whichever is lower:
previous cost :14000/500-28 pershare.
Current cos -25 per share
Profit&loss a/c Dr. (500*3)1500
to OCI investments
Adjustment Entry Using COGS account:
Inventory Change A/c Dr 19000
To COGS 19000
Note:
Understated inventory increases the cost of goods sold. Recording lower inventory in the accounting records reduces the closing stock, effectively increasing the COGS. When an adjustment entry is made to add the omitted stock, this increases the amount of closing stock and reduces the COGS.