Individual Homework #2 Page 9 of 17 Problem #2: Year-End Adjusting Entries (54 points) Gandee Candy, a wholesale distributor of penny candy and other novelties, is a calendar-year corporation. The Company also provides consulting services under various types of contracts to purveyors of its products. The Company records adjusting entries annually immediately prior to preparing its GAAP financial statements. Required: Presented below are seven fact sets that require adjusting entries at December 31, 2020. Some fact sets also require you to prepare regular journal entries. Analyze the facts provided and prepare the required journal entries and the appropriate adjusting entries in proper general journal form. You must clearly present supporting calculations when requested. An unsupported correct answer will receive a deduction of two points. Throughout this problem you will record journal entries involving cash. I did not provide T-accounts for cash. Therefore, you will not post the cash portion of the entries. You should only use these accounts from the chart of accounts of Gandee Candy: Accounts Receivable Accounts Payable Accumulated Depreciation Advertising Expense Cash Consulting Revenue Deferred Consulting Revenue Depreciation Expense Insurance Expense Interest Expense Interest Receivable Interest Revenue Interest Payable Notes Payable Notes Receivable Office Equipment Office Equipment Expense Office Supplies Office Supplies Expense Prepaid Advertising Prepaid Insurance Prepaid Rent Prepaid Salaries Rent Revenue Salaries Expense Salaries Payable Be aware that you will not use every account listed above in your entries. Fact Set #1 (8 points) At December 31, 2020, Gandee Candy determined that it owed its employees $52,630 for their services used by the Company in December 2020 to be paid on January 10, 2021. Prepare the required adjusting journal entry to record the salaries. Post the entry to the applicable T- account(s). (2 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT Individual Homework #2 Page 10 of 17 Salaries Payable Salaries Expense $511,920 Una Indicate the names of the accounts and their balances from above that Gandee Candy would report in its GAAP financial statements for fiscal year 2020. DO NOT INCLUDE CASH. (2 points) Balance Sheet at December 31, 2020: Amount Current Liabilities: Income Statement for the year ended December 31, 2020: Amount On January 10, 2021, Gandee Candy issued paychecks to its employees totaling $75,310 in payment of their services used in December 2020 and early January 2021. (4 points) DATE ACCOUNT NAMES DEBIT CREDIT Individual Homework #2 Page 11 of 17 Fact Set #2 (6 points) At December 31, 2020, Gandee Candy determined that it performed consulting services for Sissonville Confections during December for a fee of $11,600 that had not yet been billed or recorded. Prepare the required adjusting journal entry to record the consulting services performed. (2 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT On January 12, 2021, Gandee Candy received a check from Sissonville Confections for $13,500 in payment of services provided in December 2020 and early January 2021. (4 points) DATE ACCOUNT NAMES DEBIT CREDIT Fact Set #3 (16 points) On August 1, 2020, Gandee Candy borrowed $120,000 from its bank and issued a 6-month promissory note bearing 6.4% interest. Under the terms of the note, interest is due quarterly on November 1 and February 1, 2021 and principal is due to the bank at maturity on February 1, 2021. Prepare the required journal entry to record the loan received from the bank on August 1, 2020. Post the entry to the applicable T-account(s). (2 points) DATE ACCOUNT NAMES DEBIT CREDIT Individual Homework #2 Page 12 of 17 At November 1, 2020, Gandee Candy made the first quarterly interest payment to the bank on the note. Prepare the required journal entry to record the interest payment. Post the entry to the applicable T- accounts and compute their resulting balances. (3 points) DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computation Required: Notes Payable Interest Expense 1/1 2020 -O- Interest Payable At December 31, 2020, Gandee Candy determined that it must accrue the interest due to the bank on th note since the first interest payment made on November 1. Prepare the required adjusting journal entry to record the interest. Post the entry to the applicable accounts and compute their resulting balances. (4 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computation Required: liahle T-account(s). (2 points) Individual Homework #2 Page 13 of 17 Indicate the names of the accounts and their balances from above that Gandee Candy would report in its GAAP financial statements for fiscal year 2020. DO NOT INCLUDE CASH. (3 points) Balance Sheet at December 31, 2020: Amount Current Liabilities: Income Statement for the year ended December 31, 2020: Amount On February 1, 2021, Gandee Candy issued a check to its bank in full settlement of the principal and interest due on the note. Prepare the required journal entry to record the settlement of the note and interest due. (4 points) DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computation Required: 9020 try to Individual Homework #2 Page 14 of 17 Fact Set #4 (6 points) On June 1, 2020, Gandee Candy received $72,000 cash from a client that represented fees received in advance for consulting services to be provided for one year beginning on June 1. Prepare the required journal entry to record the cash received from the client on June 1, 2020. Post the entry to the applicable T-account(s). (2 points) DATE ACCOUNT NAMES DEBIT CREDIT At December 31, 2020, Gandee Candy determined that it must record an adjustment for the consultin services it provided from June 1 through December 31, 2020. Prepare the required adjusting journal entry to record the consulting services performed. Post the entr to the applicable T-accounts and compute their resulting balances. (4 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computations Required: Deferred Consulting Revenue Consulting Revenue -0- Individual Homework #2 Page 15 of 17 Fact Set #5 (6 points) On September 12, 2020, Gandee Candy received $145,000 cash from a client that represented fees received in advance for a consulting project. Gandee Candy estimated that the entire project would require 8,000 staff hours. Prepare the required journal entry to record the cash received from the client on November 12, 2020. Post the entry to the applicable T-account(s). (2 points) ACCOUNT NAMES DEBIT CREDIT DATE At December 31, 2020, Gandee Candy determined that 5,600 staff hours were used to date on the project. Gandee Candy determined that it must record an adjustment for the consulting services completed based on the percentage of the work performed. Prepare the required adjusting journal entry to record the consulting services performed. Post the entry to the applicable T-accounts and compute their resulting balances. (4 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computations Required: Deferred Consulting Revenue Consulting Revenue -0- 1/1 2020 Individual Homework #2 Individual Homework #2 Page 16 of 17 Fact Set #6 (6 points) In its balance sheet at December 31, 2019, Gandee Candy reported prepaid insurance of $13,200 that represented three months of coverage ending on March 31, 2020. On March 27, 2020, Gandee Candy paid $54,000 cash to its Insurance company for premiums on an insurance policy for one year of coverage beginning on April 1, 2020. Prepare the required journal entry to record the cash paid to the insurance company on March 27, 2020. Post the entry to the applicable T-account(s). (2 points) DEBIT CREDIT ACCOUNT NAMES DATE At December 31, 2020, Gandee Candy determined that it must record an adjustment for the insurance expired during 2020. Prepare the required adjusting journal entry to record the insurance used. Post the entry to the applicable T-accounts and compute their resulting balances. (4 points) ADJUSTING ENTRY: DEBIT CREDIT DATE ACCOUNT NAMES Supporting Computations Required: Prepald Insurance Insurance Expense 1/1 2020 -O- 12/31 2019 13,200 Individual Homework #2 Page 17 of 17 Fact Set #7 (6 points) In its balance sheet at December 31, 2019, Gandee Candy reported office supplies of $11,675. During 2020, the company paid $38,950 cash to purchase additional supplies. Prepare the required journal entry to record the cash paid for office supplies during 2020. Post the entry to the applicable T-account(s). (2 points) DATE ACCOUNT NAMES DEBIT CREDIT At December 31, 2020, Gandee Candy determined that it must record an adjustment because office supplies costing $ 14,925 remained on hand. Prepare the required adjusting journal entry to record the office supplies used. Post the entry to the applicable T-accounts and compute their resulting balances. (4 points) ADJUSTING ENTRY: DATE ACCOUNT NAMES DEBIT CREDIT Supporting Computations Required: Office Supplies Office Supplies Expense 1/1 2019 -O- 12/31 2015 11,675