Problem 45A A review of the ledger of Lewis Company at Decem

Problem 4-5A A review of the ledger of Lewis Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries 1. Prepaid Insurance $15,200. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on July 1, 2016, for $9,600. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2017, for $7,200. This policy has a term of 18 months 2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease Term (in months) Number of Leases Monthly Rent Date Nov. 1 Dec. 1 $5,000 $8,500 4 3. Notes Payable $40,000. This balance consists of a note for 6 months at an annual interest rate of 7%, dated October 1. 4. Salaries and Wages Payable $0. There are 8 salaried employees. Salaries are paid every Friday for the current week. 5 employees receive a salary of $600 each per week, and 3 employees earn $700 each per week. Assume December 31 is a Wednesday. Employees do not work weekends. All employees worked the last 3 days of December Prepare the adjusting entries at December 31, 2017. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Solution

Answers

Working---

Insurance for

Building

Motor Vehicle

Total

Amount paid as \'Prepaid\' (A)

$                                           9,600.00

$                       7,200.00

$            16,800.00

Policy purchased on

01-Jul-16

01-Jan-17

Term (in years)

3

1.5

Term expired till 31 Dec 2016 (in years)

0.5 [6 months: from 1 Jul 16 to 31 Dec 2016]

0

Prepaid Insurance expired till 31 Dec 2016 (B)

$                                           1,600.00 [9600 x 0.5/3]

$                                    -  

$              1,600.00

Unadjusted Prepaid Insurance balance (C = A – B)

$                                           8,000.00

$                       7,200.00

$            15,200.00

2017 Insurance expired

$                                           3,200.00 [9600 x 1/3]

$                       4,800.00 [7200 x 1/1.5]

$              8,000.00 [Adjustment amount]

Adjusted Prepaid Insurance on Dec 31 2017

$                                           4,800.00

$                       2,400.00

$              7,200.00

Entry---

Date

Accounts Title

Debit

Credit

31-Dec-17

Insurance Expense

$             8,000.00

Prepaid Insurance

$             8,000.00

(insurance expired for the period till 31 Dec)

Working---

Date

Term (in months)

Monthly rent

Number of Leases

Total Unearned revenue

Term expired till 31 Dec 2017

Unearned Revenue now Earned

[A]

[B]

[C]

[D = A x B x C]

[E]

[F = D x E/A]

Nov-01

9

$                       5,000.00

5

$             2,25,000.00

2

$          50,000.00

Dec-01

6

$                       8,500.00

4

$             2,04,000.00

1

$          34,000.00

Total

$                     13,500.00

$             4,29,000.00

$          84,000.00 [Adjustable amount]

Entry---

Date

Accounts Title

Debit

Credit

31-Dec-17

Unearned Rent Revenue

$          84,000.00

Rent revenues

$          84,000.00

(Unearned Revenue now earned till 31 Dec)

Working---

A

Notes Payable

$                                         40,000.00

B

Annual Interest rate

7%

C = A x B

Annual Interest expense [12 months]

$                                           2,800.00

D

Notes\' Term [months]

6

E

Date of Issue

01-Oct-17

F = Oct + Nov + Dec

No. of months till 31 Dec 2017

3

G = C x(3/12)

Interest expense to be adjusted

$                                               700.00 [ 2800 x 3/12]

Entry---

Date

Accounts Title

Debit

Credit

31-Dec-17

Interest expense

$                700.00

Interest payable

$                700.00

(interest expense for 3 months accrued)

Working---

$600 per week

$700 per week

Total

A

No. of employees

5

3

8

B = Per week $ Salary / 5 days

Per day salaries & wages of each employee

$                                               120.00

$                           140.00

C = B x 3 days

Payable to each employee for 3 days remaining of Dec

$                                               360.00

$                           420.00

D = C x A

Total Payable

$                                           1,800.00

$                       1,260.00

$              3,060.00 [Amount to be adjusted]

Entry---

Date

Accounts Title

Debit

Credit

31-Dec-17

Salaries & Wages expense

$             3,060.00

Salaries & Wages payable

$             3,060.00

(expenses accrued for 3 remaining days of Dec)

Insurance for	Building	Motor Vehicle	Total
Amount paid as \'Prepaid\' (A)	$                                           9,600.00	$                       7,200.00	$            16,800.00
Policy purchased on	01-Jul-16	01-Jan-17
Term (in years)	3	1.5
Term expired till 31 Dec 2016 (in years)	0.5 [6 months: from 1 Jul 16 to 31 Dec 2016]	0
Prepaid Insurance expired till 31 Dec 2016 (B)	$                                           1,600.00 [9600 x 0.5/3]	$                                    -	$              1,600.00
Unadjusted Prepaid Insurance balance (C = A – B)	$                                           8,000.00	$                       7,200.00	$            15,200.00
2017 Insurance expired	$                                           3,200.00 [9600 x 1/3]	$                       4,800.00 [7200 x 1/1.5]	$              8,000.00 [Adjustment amount]
Adjusted Prepaid Insurance on Dec 31 2017	$                                           4,800.00	$                       2,400.00	$              7,200.00