Pastina Company sells various types of pasta to grocery chains as private label
ID: 2390590 • Letter: P
Question
Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below Account Title Cash Accounts receivable Supplies Inventory Note receivable Interest receivable Prepaid rent Prepaid insurance Office equipment Accumulated depreciation-office equipment Accounts payable Salaries and wages payable Note payable Interest payable Deferred revenue Common stock Retained earnings Sales revenue Interest revenue Cost of goods sold Salaries and wages expense Rent expense Depreciation expense Interest expense Supplies expense Insurance expense Advertising expense Totals Debits Credits 38,500 50,000 1,450 70,000 23,100 1,900 78,000 29,250 29,000 53,100 60,000 19,500 198,000 89,100 17,700 10,450 950 4,800 2,900 388,850 388,850Explanation / Answer
Calculations:
3. Calculation of Interest Expense:
Since the note was borrowed on October 1, 2018, it implies interest will be paid for three months.
Interest Expense = Note Principal * Interest rate * number of months/ total months in a year
= $53,100 * 12% * 3/12 = $1,593
4. Calculation of Interest Receivable:
Since the note was given on March 1, 2018, it implies interest will be received for 10 months
Interest receivable = Note Principal * Interest Rate * No of months/ total months in a year
$23,100 * 8% * 10/12 = $1,540
5. Calculation of Prepaid Insurance:
$4800 * 15/24 = $3,000
6. Calculation of Supplies Expense:
= $1,450 - $770 = $680
PASTINA COMPANY Adjusting Journal Entries For the Year Ended December 31, 2018 Sr. No Particulars Debit Credit 1 Depreciation expense……..dr $9,750 To Accumulated depreciation - Equipment $9,750 (To record depreciation expense incurred) 2 Wages expense……..dr $1,250 To wages payable $1,250 (To record wages expense from 16th Dec to 31st Dec being accrued) 3 Interest expense……………dr $1593 To interest payable $1593 (To record interest expense on note for 3 months being accrued) 4 Interest receivable………….dr $1,540 To interest revenue $1,540 (To record interest revenue for 10 months being accrued) 5 Prepaid insurance…………dr $3,000 To Insurance expense $3,000 (To record insurance expense for 15 months out of 24 months being prepaid) 6 Supplies expense……….dr $680 To supplies $680 (To record supplies used during the year) 7 Sales revenue……..dr $1500 To Unearned revenue $1500 (To record sales revenue received but not earned) 8 Rent expense……..dr $950 To prepaid rent $950 (To record rent expense become due)