Reference no: EM132879696
Problem - Adjusting Entries - Clapton Guitar Company entered into the following transactions during the year. [The transactions were properly recorded in permanent (balance sheet) accounts unless otherwise indicated.]
Date Transaction
Jan. 25 Purchased $480 of office supplies.
Feb. 1 Rented a warehouse from Hendrix Company, paying 1 year's rent of $3,600 in advance. Recorded the $3,600 payment as rent expense.
Mar. 1 Borrowed $10,000 from the bank, signing a 1-year note at an annual interest rate of 12%. The bank insisted on collecting the interest in advance, so it withheld the interest amount from the funds disbursed to Clapton.
The company recorded the transaction as a debit to Cash, $8,800, a debit to Interest Expense, $1,200, and a credit to Notes Payable, $10,000.
May 1 Purchased office equipment for $15,000, paying $3,000 down and signing a 2-year, 12% (annual rate) note payable for the balance. The office equipment is expected to have a useful life of 10 years and a residual value of $1,500. Straight-line depreciation is appropriate.
May 31 Purchased a 3-year comprehensive insurance policy for $720.
Aug. 1 Sold land for $9,000. The purchaser made a $2,000 down payment and signed a 1-year, 10% note for the balance. The interest and principal will be collected on the maturity date.
Oct. 1 Rented a portion of the retail floor space to Harrison Inc. for $120 per month, collecting 8 months' rent in advance. Recorded the $960 receipt as rent revenue.
Nov. 13 Issued checks to sales personnel totaling $900. The checks are advances for expected travel costs during the remainder of the year.
On December 31, the following additional information is available:
1. Property taxes for the current year are due to be paid by April 1 of next year. The company has not paid or recorded its $2,300 property taxes for the current year.
2. The $302 December utility bill has not been recorded or paid.
3. Salaries accrued but not paid total $927.
4. Travel cost reports indicate that $787 of the $900 advanced has been used to pay for travel expenses by company personnel.
5. The Office Supplies account had a balance of $129 on January 1. A physical count on December 31 showed $174 of office supplies on hand.
6. On January 1, the Buildings account and the Store Equipment account had balances of $100,000 and $65,000, respectively. The buildings are expected to have a 20-year useful life and an $8,000 residual value, while the store equipment is expected to have a 10-year life and a $2,000 residual value. They are being depreciated using the straight-line method.
7. The income tax rate is 30% on current income and is payable in the first quarter of next year. The pretax income of the company before adjustments is $27,749.
Required - On the basis of the preceding information, prepare journal entries to adjust Clapton's books as of December 31. Each entry explanation should include supporting computations.