4-31 Effects of Adjustments and Corrections

Listed here are a series of accounts that are numbered for identification.

1. Cash 2. Accounts Receivable 3. Notes Receivable 4. Inventory 5. Accrued Interest Receivable 6. Accrued Rent Receivable 7. Fuel on Hand

8. Prepaid Rent

9. Prepaid Insurance

10. Prepaid Repairs and Maintenance

11. Land 12. Buildings 13. Machinery and Equipment

14. Long-Term Debt 15. Notes Payable 16. Accrued Wages and Salaries Payable

17. Accrued Interest Payable 18. Unearned Subscription Revenue 19. Capital Stock 20. Sales 21. Fuel Expense

22. Salaries and Wages

23. Insurance Expense 24. Repairs and Maintenance Expense 25. Rent Expense 26. Rent Revenue 27. Subscription Revenue 28. Interest Revenue 29. Interest Expense

All accounts needed to answer this question are listed previously. The same account may be used in several answers. Prepare any necessary adjusting or correcting entries called for by the following situations, which were discovered at the end of the calendar year. With respect to each situation, assume that no entries have been made concerning the situation other than those spe- cifically described (i.e., no monthly adjustments have been made during the year). Consider each situation separately. These transactions were not necessarily conducted by one firm. Amounts are in thousands of dollars.

a.A $10,000 purchase of equipment on December 30 was erroneously debited to Long-Term Debt. The credit was correctly made to Cash.

b.A business made several purchases of fuel oil. Some purchases ($900) were debited to Fuel Expense, whereas others ($1,100) were charged to an asset account. An oil gauge revealed $400 of fuel on hand at the end of the year. There was no fuel on hand at the beginning of the year. What adjustment was necessary on December 31?

c.OnApril1,abusinesstookoutafireinsurancepolicy.Thepolicywasfor2years,andthefull premium of $3,600 was paid on April 1. The payment was debited to Insurance Expense on April 1. What adjustment was necessary on December 31?

d.On December 1, $6,000 was paid in advance to the landlord for 5 months rent. The tenant debited Prepaid Rent for $6,000 on December 1. What adjustment is necessary on December 31 on the tenants books?

e.Machinery is repaired and maintained by an outside maintenance company on an annual fee basis, payable in advance. The $1,800 fee for the year beginning September 1 was paid on September 1 and charged to Repairs and Maintenance Expense. What adjustment is necessary on December 31?

f.OnNovember16,$800ofmachinerywaspurchased,$200cashwaspaiddown,anda90-day, 5% note payable was signed for the balance. The November 16 transaction was properly recorded. Prepare the adjustment for the interest on December 31.

g.A publisher sells subscriptions to magazines. Customers pay in advance. Receipts are origi- nally credited to Unearned Subscription Revenue. On June 1, $24,000 in 1-year subscriptions (all beginning on June 1) were collected and recorded. What adjustment was necessary on December 31?

h.On December 30, certain merchandise inventory was purchased for $1,300 on open account. The bookkeeper debited Machinery and Equipment and credited Accounts Payable for $1,300. Prepare a correcting entry.

i. A 120-day,8%,$15,000cashloanwasmadetoacustomeronNovember1.TheNovember1 transaction was recorded correctly. What adjustment is necessary on December 31?