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Chapter 3: Question 13BE (page 128)

BE3-13 (L08) Assume that Best Buy made a December 31 adjusting entry to debit Salaries and Wages Expense and credit Salaries and Wages Payable for \(4,200 for one of its departments. On January 2, Best Buy paid the weekly payroll of \)7,000. Prepare Best Buy’s (a) January 1 reversing entry; (b) January 2 entry (assuming the reversing entry was prepared); and (c) January 2 entry (assuming the reversing entry was not prepared).

Short Answer

Expert verified

Salary and wages expense amount is $7,000.

Step by step solution

01

Meaning of Reversing Entries:

Journal entries posted at the initiation of the financial year to rescind the impact of adjusting entries of the previous year is known as reversing entries. It helps in the continuity of accounting.

02

Closing Entries

Date

Accounts and Explanation

Debit $

Credit $

January, 1

Salaries and Wages Payable

$4,200

Salaries and Wages Expenses

$4,200

January, 2

Salary and Wages Expenses

$7,000

Cash

$7,000

January, 2

Salary and Wages Payable

$4,200

Salary and Wages Expenses

$2,800

Cash

$7,000

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Most popular questions from this chapter

(LO2,3) Dresser Company’s weekly payroll, paid on Fridays, totals \(8,000. Employees work 5-days week. Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the \)8,000 cash payment on Friday, January 2.

Question: The Amato Theater is nearing the end of the year and is preparing for a meeting with its bankers to discuss the renewal of a loan. The accounts listed below appeared in the December 31, 2017, trial balance.

Debit

Credit

Prepaid advertising

\(6,000

Equipment

192,000

Accumulated depreciation

\)60,000

Note payable

90,000

Unearned service revenue

17,500

Ticket revenue

360,000

Advertising expenses

18,680

Salaries and wages expenses

67,600

Interest expenses

1,400

Additional information is available as follows.

1. The equipment has an estimated useful life of 16 years and a salvage value of \(40,000 at the end of that time. Amato uses the straight-line method for depreciation.

2. The note payable is a one-year note given to the bank January 31 and bearing interest at 10%. Interest is calculated on a monthly basis.

3. Late in December 2017, the theater sold 350 coupon ticket books at \)50 each. Two hundred of these ticket books have been used by year-end. The cash received was recorded as Unearned Service Revenue.

4. Advertising paid in advance was \(6,000 and was debited to Prepaid Advertising. The company has used \)2,500 of the advertising as of December 31, 2017.

5. Salaries and wages accrued but unpaid at December 31, 2017, were $3,500.

Accounting

Prepare any adjusting journal entries necessary for the year ended December 31, 2017.

Analysis

Determine Amato’s income before and after recording the adjusting entries. Use your analysis to explain why Amato’s bankers should be willing to wait for Amato to complete its year-end adjustment process before making a decision on the loan renewal.

Principles

Although Amato’s bankers are willing to wait for the adjustment process to be completed before they receive financial information, they would like to receive financial reports more frequently than annually or even quarterly. What trade-offs, in terms of relevance and faithful representation, are inherent in preparing financial statements for shorter accounting time periods?

Why are revenue and expense accounts called temporary or nominal accounts?

BE3-5 (L02,3) Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years’ insurance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30.

On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing \(90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.

1. Pays \)6,000 in advance for 3 months’ rent of office, showroom, and repair space.

2. Purchases 40 personal computers at a cost of \(1,500 each, 6 graphics computers at a cost of \)2,500 each, and 25 printers at a cost of \(300 each, paying cash upon delivery

3. Sales, repair, and office employees earn \)12,600 in salaries and wages during January, of which \(3,000 was still payable at the end of January.

4. Sells 30 personal computers at \)2,550 each, 4 graphics computers for \(3,600 each, and 15 printers for \)500 each; \(75,000 is received in cash in January, and \)23,400 is sold on a deferred payment basis.

5. Other operating expenses of \(8,400 are incurred and paid for during January; \)2,000 of incurred expenses are payable at January 31.

Instructions

  1. Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
  2. Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2017.
  3. Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.
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