Question
The year end unadjusted trial balance of Harmon Ave Brewing Corporation is reproduced on an excel spreadsheet. The information below is relevant to the preparation
The year end unadjusted trial balance of Harmon Ave Brewing Corporation is reproduced on an
excel spreadsheet. The information below is relevant to the preparation of adjusting entries
needed to both properly match revenues and expenses for the period and reflect the proper
balances in the real and nominal accounts.
Instructions
You are the new accountant (and brew-master) for Harmon Ave Brewing Corporation. The 2010
year has just come to an end and you need to prepare the financial statements for 2010. Before
preparing the financial statements, you need to adjust the books. You are to prepare adjusting
entries based on the following data and based on the information in the companys year end
unadjusted trial balance. The trial balance numbers are preprinted on the spreadsheet.
Please record your adjustments in journal entry form including a brief explanation on the
separate journal entry sheet provided. Then enter the adjustments on the worksheet (in the
adjustment columns) and complete the additional columns with respect to the income statement
and balance sheet. Carefully key your adjustments and label all items. Please round all
computations to the nearest dollar.
(a) The adjustment to write-off bad debts has already been made on the books. After an aging
of accounts receivable, it was estimated that three percent (3.0%) of the uncollected
accounts receivable will become uncollectible. You need to adjust the allowance for doubtful
accounts and bad debt expense.
(b) Depreciation on equipment is computed using the straight-line method, with a five year life
and $0 salvage value. Please make the adjustment to record depreciation for 2010. All the
equipment was acquired on January 1 of 2009.
(c) In December 2010, a customer prepaid fees to Harmon Ave Brewing Corporation for
contract brewing services to be performed in December and January of 2011. The prepayment was in the amount of $1,800. The payment was recorded as fee revenue when it
was received. As of December 31, 2010, $950 dollars worth of these services have been
performed. This needs to be adjusted.
(d) The note payable was issued on October 1, 2010 bearing interest at 4% per year, due
March. 1, 2011. No payments of principal or interest have been made on this note. You
need to record interest payable as of December 31, 2010.
e) Inventories were counted on December 31, 2010. The inventory indicated $550 of brewing
supplies currently in stock. The inventory of merchandise indicated $3,200 of merchandise
inventory on hand. You need to adjust both the supplies and the merchandise inventory
accounts.
(f) Provisions of the brewery lease specify that lease payments (rent) must be made on or
before the last day of each month covering the rent for the following month. The monthly
payment for January 2011 was made on Dec. 31, 2010 and was charged to rent expense.
Brewery rent is $2,500 per month.
(g) Brewery workers are paid an in-kind bonus each week based on achieving production goals.
You have calculated that each brewery worker is entitled to one keg of beer as their
productivity bonus for the final week of December 2010. Each keg has a value of $40 and
there are 15 workers eligible for the bonus. You need to accrue a liability (bonus payable)
for the value of the bonus owed as of December 31, 2010.
Proceed as follows:
1) Enter your year-end adjustments to the journal entry worksheet
2) Post your adjustments from your journal entry worksheet to the worksheet
3) Complete the worksheet
4) Prepare the balance sheet as of 12/31/2010.
5) Prepare the income statement for the year ended 12/31/10
Account Title | DR | CR |
Cash | 6,000 | |
Accounts receivable | 20,000 | |
Allowance for doubtful accts | 500 | |
Mdse inventory | 16,000 | |
Brewing supplies | 1,000 | |
Equipment | 40,000 | |
Accum depr - equip | 4,000 | |
Accounts payable | 5,500 | |
Notes payable | 12,000 | |
Common stock | 5,000 | |
Retained earnings | 7,000 | |
Sales | 1,203,000 | |
Fees for services | 62,000 | |
Cost of goods sold | 844,000 | |
Office salaries | 80,000 | |
Brewer's salaries | 250,000 | |
Rent expense | 26,000 | |
Legal and accounting exp | 11,000 | |
Bad debt expense | 1,000 | |
Supplies expense | 4,000 | |
Subtotal | ||
Net income | ||
Totals | 1,299,000 | 1,299,000 |
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