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E4-7 Recording Seven Typical Adjusting Entries LO2 Cardon's Boat Yard, Inc., repairs, stores, and cleans boats for customers. It is completing the accounting process for the year just ended, November 30, 2012. The transactions during 2012 have been journalized and posted. The following data with respect to adjusting entries are available: a. Cardon's winterized (cleaned and covered) three boats for customers at the end of November, but did not record the service for $4,500. b. On October 1, 2012, Cardon's paid $1,560 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have been run except for three Thursdays in December to complete the 12-week contract. c. Cardon's borrowed $294,000 at a 10 percent annual interest rate on April 1, 2012, to expand its boat storage facility. The loan requires Cardon's to pay the interest quarterly until the note is repaid in three years. Cardon's paid quarterly interest on July 1 and October 1. d. The Johnson family paid Cardon's $4,440 on November 1, 2012, to store its sailboat for the winter until May 1, 2013. Cardon's credited the full amount to Unearned Storage Revenue on November 1. e. Cardon's used boat-lifting equipment that cost $300,000; $30,000 was the estimated depreciation for 2012. f. Boat repair supplies on hand at December 1, 2011, totaled $17,300. Repair supplies purchased and debited to Supplies during the year amounted to $47,900. The year-end count showed $12,300 of the supplies on hand. g. Wages earned by employees during November 2012, unpaid and unrecorded at November 30, 2012, amounted to $4,400. The next payroll date will be December 5, 2012. Ellis, Inc., Recording the 2011 adjusting entries # a. b. c. d. e. Account Head Supplies Expenses Supplies Insurance Expense Prepaid Insurance Depreciation Expense Accumulated Depreciation Wages Expense Wages Payable Income Tax Expense Income Tax Payable Income Statement For the year ending December 31, 2011 Service Revenue Less: Expenses Remaining Expenses $33,360 Supplies Expense 400 Insurance Expense 400 Depreciation Expense 4,200 Wages Expense 720 Income Tax Expense $5,880 Total Expenses Net Income Debit $400 Credit $400 $400 $400 $4,200 $4,200 $720 $720 $5,880 $5,880 $61,600 44,960 $16,640 Statement of Retained Earnings For the year ending December 31, 2011 Balance as Dec 31, 2010 Add: Net Income Balance as Dec 31, 2011 $6,000 16,640 $22,640 Balance Sheet As on December 31, 2011 Assets Current Assets Cash Accounts receivable Supplies Prepaid Insurance Total Current Assets $46,500 10,400 240 400 57,540 Service Trucks Accumulated Depreciation Other Assets Total Assets 16,000 (13,800) 8,960 $68,700 Liabilities and Equity Current Liabilities Accounts payable Wages payable Income taxes payable Total current liabilities Note payable Trial Balance Difference Equity Contributed Capital Retained earnings Total Equity Total liabilties and Equity Closing Entries # Account Head 1 Income Summary Remaining Expenses Supplies Expense Insurance Expense Depreciation Expense Wages Expense Income Tax Expense 2 3 $2,400 720 5,880 9,000 16,000 $410 $20,650 22,640 43,290 $68,700 Debit $44,960 Credit $33,360 $400 $400 $4,200 $720 $5,880 Service Revenue Income Summary $61,600 Income Summary Retained Earnings $16,640 $61,600 $16,640 7 Recording Adjusting and Closing Entries and Preparing a Balance Sheet and Income Statement Including Earnings per Share LO1, 2, 3, 5 Ellis, Inc., a small service company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as of the end of the annual accounting period, December 31, 2011: Account Titles Cash $ Accounts receivable Supplies Prepaid insurance Service trucks Accumulated depreciation Other assets Accounts payable Wages payable Income taxes payable Note payable (3 years; 10% interest due each December 31) Contributed capital (5,600 shares outstanding) Retained earnings Service revenue Remaining expenses (not detailed; excludes income tax) Income tax expense Totals $ Debit 46,500 10,400 640 800 16,000 Credit $ 9,600 8,960 2,400 16,000 20,650 6,000 61,600 33,360 116,160 $ 116,160 Data not yet recorded at December 31, 2011, included: a. The supplies count on December 31, 2011, reflected $240 remaining supplies on hand to be used in 2012. b. Insurance expired during 2011, $400. c. Depreciation expense for 2011, $4,200. d. Wages earned by employees not yet paid on December 31, 2011, $720. e. Income tax expense, $5,880. 1- Record the 2012 adjusting entries 2- Prepare an income statement and a classified balance sheet that include the effects of the preceding five transactions. 3- Record the 2012 closing entry Ellis, Inc., Recording the 2011 adjusting entries # a. b. c. d. e. Account Head Supplies Expenses Supplies Insurance Expense Prepaid Insurance Depreciation Expense Accumulated Depreciation Wages Expense Wages Payable Income Tax Expense Income Tax Payable Income Statement For the year ending December 31, 2011 Service Revenue Less: Expenses Remaining Expenses $33,360 Supplies Expense 400 Insurance Expense 400 Depreciation Expense 4,200 Wages Expense 720 Income Tax Expense $5,880 Total Expenses Net Income Debit $400 Credit $400 $400 $400 $4,200 $4,200 $720 $720 $5,880 $5,880 $61,600 44,960 $16,640 Statement of Retained Earnings For the year ending December 31, 2011 Balance as Dec 31, 2010 Add: Net Income Balance as Dec 31, 2011 $6,000 16,640 $22,640 Balance Sheet As on December 31, 2011 Assets Current Assets Cash Accounts receivable Supplies Prepaid Insurance Total Current Assets $46,500 10,400 240 400 57,540 Service Trucks Accumulated Depreciation Other Assets Total Assets 16,000 (13,800) 8,960 $68,700 Liabilities and Equity Current Liabilities Accounts payable Wages payable Income taxes payable Total current liabilities Note payable Trial Balance Difference Equity Contributed Capital Retained earnings Total Equity Total liabilties and Equity Closing Entries # Account Head 1 Income Summary Remaining Expenses Supplies Expense Insurance Expense Depreciation Expense Wages Expense Income Tax Expense 2 3 $2,400 720 5,880 9,000 16,000 $410 $20,650 22,640 43,290 $68,700 Debit $44,960 Credit $33,360 $400 $400 $4,200 $720 $5,880 Service Revenue Income Summary $61,600 Income Summary Retained Earnings $16,640 $61,600 $16,640