Brewer Trading Company has a preliminary figure for earnings

Brewer Trading Company has a preliminary figure for earnings of $500,000, for the year ended 31 December 2017. The company also has provided the following information in relation to its annual financial information.

a. The company has a bank loan outstanding for $400,000, which has been outstanding for the entire year. The interest has not been paid or recorded for the final quarter. Interest is based on an annual rate of 4%.

b. Property tax of $24,000 was paid in September, and were for the 12-month period starting on 1 October. The amount was expensed in September.

c. The office supplies account has a balance of $1,300. A physical count indicates $500 of office supplies on hand.

d. A customer paid $60,000 on an outstanding account receivable in December. This amount was credited to sales, in error.

e. Depreciation of equipment in the amount of $32,800 has not been recorded.

f. Accounting fees paid, in the amount of $15,200, were debited to dividends instead of the Accounting Fee Expense account.

g. A customer paid $50,000 as a deposit in June. This was credited to unearned revenue, but the transaction was completed in October, and the goods delivered. Cost of goods sold was correctly recorded at that time, but the unearned revenue was not changed.

h. At the beginning of the year, there was a balance of $4,480 in the prepaid insurance account, for a policy that will expire at the end of February 2018. During the year, a second policy for different coverage came into effect on June 1.This policy cost $9,540 and covers 18 months. The payment was debited to insurance expense when it was made.

i. No income tax has been recorded, but the tax rate is 25%.

Required:

Journalize each of the above transactions (Descriptions for each journal entry are not necessary).

Solution

Date Account titles and explanations Debit Credit 2017 a. 31-Dec Interest expense (400000*4%*3/12) 4000 Interst payable 4000 (Being interest outstanding for the last quarter) b. 31-Dec Prepaid property tax (24000/12)*9 18000 Property tax expense 18000 (Property tax paid in advance for 9 months) c. 31-Dec Supplies expense (1300-500) 800 Supplies 800 (Supplies used) d. 31-Dec Sales 60000 Accounts receivable 60000 (Rectificatied error of crediting sales instead of accounts receivable) e. 31-Dec Depreciation expense 32800 Accumulated depreciation 32800 (Depreciation expenses recorded) f. 31-Dec Accounting Fee Expense 15200 Dividend 15200 (Rectificatied error of Debiting dividend instead of Accounting fee) g. 31-Dec Unearned revenue 50000 Sales 50000 (Error in unearned revenue rectified) h. 31-Dec Insurance expense (4480/14)*12 3840 Prepaid insurance 3840 (opening balance in prepaid expense transferred as current year expense to the extent of 12 months) 31-Dec Prepaid insurance (9540/18)*7 3710 Insurance expense 3710 (Prepaid expenses recoreded by rectifying error) i. 31-Dec Tax expenses (Note:1) 113768 Tax payable 113768 (Tax expenses recorded) Notes: 1. Computation of tax payable: Earnings before adjustment 500000 Effect of adjustments a. Reduction by -4000 b. Increase by 18000 c. Reduction by -800 d. Reduction by -60000 e. Reduction by -32800 f. Reduction by -15200 g. Increase by 50000 h. Reduction by -3840 Increase by 3710 Earnings after adjustment 455070 Tax @ 25% 113768