The following account balances pertain to the Henryville Manufacturing Co. at Se
ID: 2448735 • Letter: T
Question
The following account balances pertain to the Henryville Manufacturing Co. at September 30, 2012 (before adjusting entries).
Debit
Credit
Accounts Receivable .........................
$ 40,000
Allowance for Doubtful Accounts credit balance in an Asset.............
$ 2,500
Inventory ...................................
99,700
Prepaid Insurance ...........................
2,400
Equipment ...................................
300,000
Accumulated Depreciation ....................
125,000
Notes Payable ...............................
48,000
Unearned Revenue ( a liability since we were paid cash in advance of the sale....................
72,000
Additional information:
(a). The controller and the credit manager agreed that, based on an aging of year-end accounts receivable, the allowance for doubtful accounts should be increased to $4,300, remember you have a beg. balance.
(b). The credit manager determined that a customer account with a balance of $850 was uncollectible (without regard to the information in (a) above).
(c). The $48,000 note payable is dated August 13, 2012, and bears interest at 12 percent per annum. The note and interest are payable at maturity on November 13, 2012. (Assume a 365-day year and round to the nearest dollar and since it is now 9/30 there is 48 days accrued interest on the note.)
(d)
The prepaid insurance balance arose from the payment of an annual premium on January 1, 2012.
(e). The company maintains a perpetual inventory system. The inventory at September 30, 2012, was
$102,600 as determined by physical count.
(f)
The equipment is being depreciated over a 20-year estimated useful life.
(g). The unearned revenue represents an amount received for a long-term equipment rental to the NorthWest Tool & Die Co. The cash ($72,000) was received on April 26, 2012, and represents prepayment of a 1-year rental beginning May 1, 2012.
Prepare adjusting entries to Henryville Co.'s accounts at September 30, 2012. Each entry
Debit
Credit
Accounts Receivable .........................
$ 40,000
Allowance for Doubtful Accounts credit balance in an Asset.............
$ 2,500
Inventory ...................................
99,700
Prepaid Insurance ...........................
2,400
Equipment ...................................
300,000
Accumulated Depreciation ....................
125,000
Notes Payable ...............................
48,000
Unearned Revenue ( a liability since we were paid cash in advance of the sale....................
72,000
Explanation / Answer
Dr Cr 1) Doubtful Accounts Expense 1800 Allowance for Doubtful Accounts 1800 2) Allowance for Doubtful Accounts 850 Accounts Receivable 850 3) Interest Expense (48000*0.12*48/365) 757 Interest Payable 757 4) Insurance Expense 1800 Prepaid Expense (200*9) 1800 5) Inventory (102600-99700) 2900 COGS 2900 6) Depreciation exp - Equip 15000 Accumulated depreciation 15000 7) Unearned Revenve (72000*5/12) 30000 Rental Revenvue 30000