Problem 1

Northern Company adjusts and closes its books each December 31. It is now December 31, 20x5, and the adjusting entries are to be made. You are requested to prepare the adjusting entry that should be made for each of the following items (note that the original entries have been made, i.e. you do not need to provide the original entry):

a. Credit sales for the year amounted to $220,000. The estimated loss rate on bad debts is 3% of sales.

b. Unpaid and unrecorded wages incurred at December 31 amounted to $5,800.

c. The company paid a two-year insurance premium in advance on April 1, 20x5, amounting to $9,600, which was debited to prepaid insurance.

d. Machine A, which cost $80,000, is to be depreciated for the full year. The estimated useful life is 10 years, and the residual value, $4,000. Use straight-line depreciation.

e. The company rented a warehouse on June 1, 20x5, for one year. It had to pay the full amount of rent one year in advance on June 1, amounting to $12,000, which was debited to rent expense.

f. The company received from a customer a 9% note with a face amount of $12,000. The note was dated September 1, 20x5; the principal plus the interest is payable one year later. Notes receivable was debited, and sales revenue was credited on the date of sale, September 1, 20x5.

g. On April 1, 20x5, the company signed a $60,000, 10% note payable. On that date, cash was debited and notes payable credited for $60,000. The note is payable on March 31, 20x6, for the face amount plus interest for one year.

h. The company purchased a patent on January 1, 20x5, at a cost of $11,900. On that date, the patent account was debited and cash credited for $11,900. The patent has an estimated useful life of 17 years and no residual value.