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Chapter 3: Q39PGB-1 (page 174)

Lopez Landscaping has the following data for the December 31 adjusting entries: a. Each Friday, Lopez pays employees for the current week’s work. The amount of the weekly payroll is \(6,500 for a five-day workweek. This year, December 31 falls on a Wednesday. Lopez will pay its employees on January 2. b. On January 1 of the current year, Lopez purchases an insurance policy that covers two years, \)7,500. c. The beginning balance of Office Supplies was \(3,700. During the year, Lopez purchased office supplies for \)5,800, and at December 31 the office supplies on hand total \(3,000. d. During December, Lopez designed a landscape plan and the client prepaid \)6,000. Lopez recorded this amount as Unearned Revenue. The job will take several months to complete, and Lopez estimates that the company has earned 70% of the total revenue during the current year. e. At December 31, Lopez had earned \(7,500 for landscape services completed for Tomball Appliances. Tomball has stated that it will pay Lopez on January 10. f. Depreciation for the current year includes Equipment, \)3,800; and Trucks, \(1,400. g. Lopez has incurred \)250 of interest expense on a $350 interest payment due on January 15. Requirements 1. Journalize the adjusting entry needed on December 31 for each of the previous items affecting Lopez Landscaping. Assume Lopez records adjusting entries only at the end of the year. 2. Journalize the subsequent journal entries for adjusting entries a, d, and g.

Short Answer

Expert verified

Adjusting entries are as follows:

Journal entry

Transactions

Accounts and Explanation

Debit

Credit

(a)

Salaries Expense

$3,900

Salaries Payable

$3,900

To record accrued salaries expense

(b)

Insurance Expense

$3,750

Prepaid Rent

$3,750

To record insurance expense

(c)

Supplies Expense

$6,500

Office Supplies

$6,500

To record office supplies used

(d)

Unearned Revenue

$4,200

Service Revenue

$4,200

To record service revenue earned that was collected in advance

(e)

Accounts Receivable

$7,500

Service Revenue

$7,500

To record the service revenue earned

(f)

Depreciation Expense—Equipment

$3,800

Accumulated Depreciation—Equipment

$3,800

To record depreciation on equipment

Depreciation Expense—Trucks

$1,400

Accumulated Depreciation—Trucks

$1,400

To record depreciation on trucks

(g)

Interest Expense

$250

Interest Payable

$250

To record accrued interest expense

Step by step solution

01

Calculation of Salaries Expense

Salaries expense is calculated as follows:

SalariesExpense=SalariesPerWeeklyPayroll×NumberofDaysExpiredNumberofDaysPerPayrollWeek=$6,500×35=$3,900

02

Calculation of Insurance Expense

Insurance expense is calculated as follows:

InsuranceExpense=AmountPaid×NumberofMonthsExpiredTotalMonthsofInsurancePaid=$7,500×1224=$3,750

03

Calculation of Office Supplies Used

Office Supplies Used is calculated as follows:

OfficeSuppliesUsed=BeginningBalance+Purchases-OfficeSuppliesonHand=$3,700+$5,800-$3,000=$6,500

04

Calculation of Service Revenue Earned out   of the  Advance Received

Service revenue is calculated as follows:

ServiceRevenue=AmountReceived×PercentagePortionEarned=$6,000×70%=$4,200

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Most popular questions from this chapter

Question :Consider the following independent situations at December 31: a. On October 1, a business collected \(3,000 rent in advance, debiting Cash and crediting Unearned Revenue. The tenant was paying one year’s rent in advance. On December 31, the business must account for the amount of rent it has earned. b. Salaries expense is \)1,800 per day—Monday through Friday—and the business pays employees each Friday. This year, December 31 falls on a Thursday. c. The unadjusted balance of the Office Supplies account is \(3,000. Office supplies on hand total \)1,900. d. Equipment depreciation was \(500. e. On April 1, when the business prepaid \)4,320 for a two-year insurance policy, the business debited Prepaid Insurance and credited Cash. Journalize the adjusting entry needed on December 31 for each situation. Use the letters to label the journal entries

What is an accrued revenue? Provide an example

Question :Chef ’s Catering completed the following selected transactions during May 2018: Learning Objectives 1, 2 Learning Objectives 1, 2 > Exercises May 1 Prepaid rent for three months, \(2,400. 5 Received and paid electricity bill, \)700. 9 Received cash for meals served to customers, \(2,600. 14 Paid cash for kitchen equipment, \)3,000. 23 Served a banquet on account, \(2,800. 31 Made the adjusting entry for rent (from May 1). 31 Accrued salary expense, \)1,600. 31 Recorded depreciation for May on kitchen equipment, \(50. Date May 1 \)(2,400) $0 Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense) Amount of Revenue (Expense) for May Requirements 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the following table. (Expenses should be shown in parentheses.) Also, indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example. 2. After completing the table, calculate the amount of net income or net loss for Chef ’s Catering under the accrual basis and cash basis accounting systems for May. 3. Considering your results from Requirement 2, which method gives the best picture of the true earnings of Chef ’s Catering? Why?

Question :Birch Park Senior Center has a weekly payroll of \(12,500. December 31 falls on Wednesday, and Birch Park Senior Center will pay its employees the following Monday (January 5) for the previous full week. Assume Birch Park Senior Center has a five-day workweek and has an unadjusted balance in Salaries Expense of \)620,000. Requirements 1. Record the adjusting entry for accrued salaries on December 31. 2. Post the adjusting entry to the accounts involved, and show their balances after adjustments. 3. Record the journal entry for payment of salaries made on January 5

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Griffin purchased a three-month boat insurance policy on November 1 for \)1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned \(3,000 of charter revenue that has not been recorded or received. d. Griffin’s fishing boat was purchased on January 1 at a cost of \)33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of \(3,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Griffin received \)9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide
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