Cactus Company’s annual accounting year ends on June 30. Assume it is June 30, a
ID: 2406538 • Letter: C
Question
Cactus Company’s annual accounting year ends on June 30. Assume it is June 30, and all of the entries except the following adjusting journal entries have been made:
The company earned service revenue of $1,900 on a special job that was completed June 29. Collection will be made during July; no entry has been recorded.
On March 31, Cactus paid a six-month premium for property insurance in the amount of $3,180 for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.
At June 30, wages of $890 were earned by employees but not yet paid. The employees will be paid on the next payroll date, which is July 15.
On June 1, Cactus collected two months’ revenue of $440. At that date, Cactus debited Cash and credited Unearned Revenue for $440. One-half of it has now been earned but not yet recorded.
Cash of $4,140 was collected on May 1 for services to be rendered evenly over the next year beginning on May 1. Unearned Revenue was credited when the cash was received. Some of it has now been earned but not yet recorded.
The company owes interest of $590 on a bank loan taken out on February 1. The interest will be paid when the loan is repaid next year on January 31.
The income after all adjustments except income taxes was $31,000. The company’s federal income tax rate is 25%. Compute and record income tax expense.
Determine the accounting equation effects of each required adjustment.
Give the adjusting journal entry required for each transaction at June 30. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Cactus Company’s annual accounting year ends on June 30. Assume it is June 30, and all of the entries except the following adjusting journal entries have been made:
Explanation / Answer
Part 1
Effects of Transactions
a
Income will be increased and assets will be increased with the same amount.
b
Expense will be booked so income will decrease by amount of insurance expired and asset will decrease indicating prepaid insurance.
c
Expense will be recorded and liability will be created. It will affect balance sheet as well as Income statement
d
Income will be increased and Liability will be decreased with the same amount.
e
Depreciation will be recorded which will decrease income and reduce amount of Fixed asset.(alternatively accumulated depreciation may be credited)
f
Unearned income is reduced as 2 months revenue has been earned.
g
Interest expense will reduce income and liability will be similarly increased since not yet paid.
h
Provision for Income tax is created and expense for tax is recoded.
Part 2
Refrence
Date
Account Title
Debit
Credit
a
30-Jun
Accounts Receivable
$ 1,900.00
Service revenue earned
$ 1,900.00
(Revenue recorded and to be received later)
b
30-Jun
Insurance Expenses
$ 1,590.00
Prepaid Insurance
$ 1,590.00
(Being Insurance expired for 3 months Recorded)
c
30-Jun
Wages
$ 890.00
Wages Payable
$ 890.00
(Wages payable Recorded)
d
30-Jun
Unearned Revenue
$ 220.00
Service revenue Earned
$ 220.00
(service revenue earned and adjusted with unearned portion)
e
30-Jun
Depreciation
$ 1,490.00
Truck
$ 1,490.00
(depreciation on truck recorded)
f
30-Jun
Unearned Revenue
$ 690.00
Service revenue Earned
$ 690.00
(service revenue for 2 months out of 12 months recorded)
g
30-Jun
Interest on loan
$ 590.00
Interest on loan Payable
$ 590.00
(interst payable recorded as liability and interest expenses recorded for year)
h
30-Jun
Income tax Expense
$ 7,750.00
Income tax payable
$ 7,750.00
(income tax payable on income)
$ 15,120.00
$ 15,120.00
Part 1
Effects of Transactions
a
Income will be increased and assets will be increased with the same amount.
b
Expense will be booked so income will decrease by amount of insurance expired and asset will decrease indicating prepaid insurance.
c
Expense will be recorded and liability will be created. It will affect balance sheet as well as Income statement
d
Income will be increased and Liability will be decreased with the same amount.
e
Depreciation will be recorded which will decrease income and reduce amount of Fixed asset.(alternatively accumulated depreciation may be credited)
f
Unearned income is reduced as 2 months revenue has been earned.
g
Interest expense will reduce income and liability will be similarly increased since not yet paid.
h
Provision for Income tax is created and expense for tax is recoded.