Question # 3 Adjusting Entries 15 marks 24 minutes The following independent eve
ID: 2340467 • Letter: Q
Question
Question # 3 Adjusting Entries 15 marks 24 minutes The following independent events for Sadie's Theatre Ltd. during the year ended December 31, 2018, require a transaction journal entry or an adjusting journal entry, or both. The company adjusts its accounts annually 1. Supplies on hand amounted to $1,500 at the beginning of the year. On March 1, additional supplies were purchased for $4,250 cash. At the end of the year, a physical count showed that supplies on hand amounted to S1,000 2. The theatre owns a vehicle that was purchased on January 2, 2018, for S120,000. The vehicle's estimated useful life is four years. 3-The theatre has nine plays each season, which starts n September 2018 and ends in May 2019 (one play per month). Season tickets sell for $360. On August 2, 600 season tickets were sold for the upcoming 2 the full amount received on August 2 and uses a Ticket Revenue account to record revenue earned from season tickets. 018-2019 season. The theatre credited Uneamed Revenue for 4. On June 1, the teatre borrowed $30,000 from a bank at an interest rate of 6%, to be repaid in one year. The interest is payable on the first day of each following month, and was ast paid on December 1 5. The total weekly payroll is $9,000, paid every Friday for employee salaries camed during the prior six-day workweek (Saturday to Thursday). This year, December 31 falls on a Monday. Saaries were last paid (and recorded) on Friday, December 28, and will be paid next on Friday, January 4. 6. Sadie's Theatre rents a portion of its facilities for $600 a month to a local seniors' choir that uses the space for rehearsas. The choirs treasurer was ill during December, and on January 7, the theatre received a $1,200 cheque for both the amount owing for the month of December and the rent for the month of Jaruary 7. Upon reviewing its books on December 31, the theatre noted that a telephone bill for the month of December had not yet been received. A call to Bell Aliant determined that the telephone bill was for S1,125. The bill was paid on January 11. (Hint: Use the Utilities Expense account for telephone services.) Instructions (15 marks (a) Prepare the journal entries to record the original transactions for items 1, 2, 3, and 4. (b) Prepare the year-end adjusting entries required for items 1 through 7 on December 31 (c) Record the subsequent cash transactions in January for (1) the interest paid on January 1 (item 4), (2) payment of the payroll on January 4 (item 5), 3) receipt of the rent on January 7 (item 6), and (4) payment of the telephone bill on January 11 (item 7)Explanation / Answer
(a) Journal entries of (1),(2),(3),(4)
(1) Stock purchased in cash
Purchase a/c 4250
To cash A/c 4250
(2) Vehicle purchased
Vehicle a/c 120000
To Bank a/c 120000
(3) Ticket revenue recieved for 4 months (600*360*4/9)
Casha/c 96000
To Ticket revenue a/c 96000
(4) Amount borrowed from bank @interest rate of 6%
Bank a/c 30000
To Loan a/c 30000
(b) Year End Adjusting Entry
(1) Cash 4750
To Sales 4750 (Op stock + purchases-closing =1500+4250-1000)
(2) Dep a/c 30000
To vehicle a/c 30000 (120000/4)
(3)Unearned Revenue a/c 120000 (216000-96000)
To Ticket Revenue a/c 120000 ( Reversing the entry as income is of next FY)
(4)From July 1 to dec1 interest entry will be as follows:
Interest a/c (30000*6%*1/12) 150
To Cash 150
(5) Salary from 28th dec to 31st dec will be paid on 4th Jan. accounting for 3 day salary will be outstanding (9000*3/6)
Salary a/c 4500
To o/s Salary a/c 4500
(6) Accrued Rent a/c 600
To P&L a/c 600
(7) Utilities Billa/c 1125
To O/s Utilities Bill A/c 1125
(C)
(1) Interest a/c (30000*6%*1/12) 150
To Cash 150
(2) O/S Salary a/c 4500
Salary a/c 4500
To Cash 9000
(3) Cash a/c 1200
To rent received 600
To Accrued Rent 600
(4) O/S utilities Bill a/c 1125
To Cash a/c 1125