Prepaid insurance $15,200. The company has separate insurance policies on its bu
ID: 2351703 • Letter: P
Question
Prepaid insurance $15,200. The company has separate insurance policies on its buildings and motor vehicle. Policy A on the building was purchased on July 1 2011, for $9,600. The policy has a term of 3 years. Policy B on the vehicles was purchased on January 1 2012, for $7,200. This policy has a term of 18 months. Unearned Sales Revenue $22,800: The company began selling magazine subscription on October 1 2012, on an annual basis. The selling price of a subscription is $24. A review of subscription contracts reveals: Subscription Start Date # of Subscriptions Oct 1 250 Nov 1 300 Dec 1 400 Total 900 Notes payable $40,000: This balance consists of a note for 6 months at an annual rate of 7% dated October 1. Salaries payable $0: There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $600 per week, and three employees earn $700 per week. Assume December 31 is a Wednesday. Employees do not work weekends. All employees worked the last 3 days on December. Prepare the adjusting entries at December 31 2012.Explanation / Answer
Policy A on Bldg for 3 Yrs for $9600. SO Annual Prem A = 9600/3 = 3200. Policy B on Veh for 18m for $7200. So Annual Prem B = 7200/1.5 = 4800 Unearned Rev : Annual Sub is $24 Sub startdate 1 Oct. Sub Rev 250*$24 = $6000. Sub remaining on 31 Dec = 9m*$6000/12m = $4500. So sub used is 1500 Sub startdate 1 Nov. Sub Rev 300*$24 = $7200. Sub remaining on 31 Dec = 10m*$7200/12m = $6000. So sub used is 1200 Sub startdate 1 Dec. Sub Rev 400*$24 = $9600. Sub remaining on 31 Dec = 11m*$9600/12m = $8800. So sub used is 800 Note Payable 1 Oct $40000 for 6m @7%. So Int payable on 31 Dec is for 3 month So Int due for 3 month on 31 Dec = 40000*7%*(3/12) = $700 Emp Salary per week = 5*$600+ 3*$700 = $5,100 So on 31 Dec, Salary Due for Dec is for 3 days (Mon-Wed) & week has 5 days. So 0n 31 Dec, Salary Payable is 3*$5100/5 = $3060 So Adjusting entry on 31 Dec'2012 are as below :- 31 Dec 2012 Insu Exp Policy A Dr 3200 Insu Exp Pol B Dr 4800 Prepaid Insu Cr $8000 31 Dec 2012 Unearned Revenue Dr 3500 Subscription Rev Cr 3500 (Sub for Oct+Nov+Dec = 1500+1200+800 = 3500) 31 Dec'12 Int exp Dr 700 Int Payable Cr 700 31 Dec'12 Salary Payable Dr 3060 Salary Accrued Cr 3060