New Art Agency was founded in January 2012. Presented below is the trial balance
ID: 2459595 • Letter: N
Question
New Art Agency was founded in January 2012. Presented below is the trial balance as of June 30, 2014, the end of the company’s fiscal year.
New Art Agency
Trial Balance
June 30, 2014
Debit
Credit
Cash
$72,200
Accounts Receivable
89,500
Allowance for Doubtful Accounts
$ 1,800
Notes Receivable
45,500
Art Supplies
35,700
Prepaid Rent
22,500
Printing Equipment
225,000
Accumulated Depreciation – Printing Equipment
67,500
Notes Payable
33,800
Accounts Payable
25,500
Unearned Advertising Revenue
35,800
Share Capital – Ordinary
214,000
Retained Earnings
32,500
Dividends
9,200
Advertising Revenue
224,750
Salaries Expense
86,300
Utilities Expense
17,600
Insurance Expense
13,750
Miscellaneous Expense
18,400
$635,650
$635,650
Prepare the adjusting entries for these accounts:
- Art supplies
- Depreciation
- Receivables
- Payables
- Salaries expense
- Rent Expense
- Unearned Advertising Revenue
You need to set your own numbers in order to adjust the accounts. These numbers should be in consistency with your trial balance.
Example
The trial balance is showing the following balance for “Art Supplies”:
Dr
Cr
Art Supplies
35,700
Your assumption could be formulated as follows:
Store Supplies: An inventory count at the end of the year reveals that $3,700 of supplies are still on hand.
So the cost of supplies used = 35,700-3,700=32,000
Adjusting entry for supplies:
Dr: Supplies Expense 32,000
Cr: Art Supplies 32,000
You need to do same for the other adjustments. You can follow the textbook pp 102-117.
Post the adjusting entries to the ledger
Prepare an adjusted trial balance
Prepare the worksheet
Prepare financial statements
Journalize and post the closing entries
Prepare a post-closing trial balance
New Art Agency
Trial Balance
June 30, 2014
Debit
Credit
Cash
$72,200
Accounts Receivable
89,500
Allowance for Doubtful Accounts
$ 1,800
Notes Receivable
45,500
Art Supplies
35,700
Prepaid Rent
22,500
Printing Equipment
225,000
Accumulated Depreciation – Printing Equipment
67,500
Notes Payable
33,800
Accounts Payable
25,500
Unearned Advertising Revenue
35,800
Share Capital – Ordinary
214,000
Retained Earnings
32,500
Dividends
9,200
Advertising Revenue
224,750
Salaries Expense
86,300
Utilities Expense
17,600
Insurance Expense
13,750
Miscellaneous Expense
18,400
$635,650
$635,650
Explanation / Answer
Adjusting entry for Accounts receivables:
suppose accounts receivables of $1000 is still to be recorded.The adjustment entry will be drafted as Debit accounts Receivables A/c by $1000 & credit Service Revenue i.e. Advertising Revenue in this case By $1000
Entry
Accounts Receivables Dr. $1000
Advertising Revenue Cr. $1000
Now accounts receivables balance in adjusted trial balance will be $89,500+$1000 = $90500
and Advertising revenue balance in adjusted trial balance will be $224,750+$1000 = $225750
Accounts receivable new balance will go to debit side of adjusted trial balance & advertising revenue new balance will go to credit side,thus adjusted trial balance will tally.
Adjusting entry for Accounts Payables:
Similarly for accounts payable,suppose there is a pending entry of $1500 which relates to a utility expense bill which has not been received till the date of closing but the expenditure relates to current year only.So adjustment entry will be passed by debiting Utility expense A/c by $1500 & credting Accounts payables A/c by $1500.
Entry
Utility Expense A/c Dr. $1500
Accounts Payables A/c Cr. $1500
Now accounts payable balance in adjusted trial balance will be $25,500+$1500 = $27,000
and Utilities expense balance in adjusted trial balance will be $17,600+$1500 = $19,100
Accounts payables new balance will go to credit side of adjusted trial balance & utilities expense new balance will go to debit side,thus adjusted trial balance will tally.
For bad debts and allowance for bad debts
Allowance for Bad Debts (also often called Allowance for Doubtful Accounts) represents the estimated portion of the Accounts Receivable that the company will not be able to collect.To recognize doubtful accounts or bad debts, an adjusting entry must be made at the end of the period. The adjusting entry for bad debts looks like this:
Dec 31 Bad Debts Expense $1000
Allowance for Bad Debts $1000
Bad Debts Expense is an income statement account while the latter is a balance sheet account.In adjusted trial Balance,bad debts will be shown as $1000 & allowance for bad debts A/c will be increased by $1000.
Notes receivables and payables:
Interest Payable is a liability account that reports the amount of interest the company owes as of the balance sheet date. If there is a balance in Notes Payable, the company should be reporting some amount in Interest Expense and in Interest Payable.
Let's assume that the company borrowed the $5,000 on December 1 and agrees to make the first interest payment on March 1. If the loan specifies an annual interest rate of 6%, the loan will cost the company interest of $300 per year or $25 per month. On March 1 the company will be required to pay $75 of interest. On the December income statement the company must report one month of interest expense of $25. On the December 31 balance sheet the company must report that it owes $25 as of December 31 for interest.
Entry is
Interest expense DR. $25
Interest Payable CR. $25