Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that would be needed for the initial recording and subsequent end-of-20X3 adjusting entry. Assume the company uses the balance sheet approach, and the initial recording is to an asset account. The company has a calendar year-end and does not make any adjusting entries prior to December 31.
(1) The company purchased an 18-month insurance policy for $18,000 on June 1, 20X3. (2) The company started 20X3 with $20,000 in supplies (this was previously recorded, and you do not need to make an entry for the beginning balance), purchased $30,000 in supplies during the year, and found only $13,000 in supplies on hand at the end of 20X3. (3) The company paid $2,500 to rent a truck. The rental period began on December 16, 20X3, and ends on February 14, 20X4.
GENERAL JOURNAL Date Accounts Debit Credit 1-Jun 31-Dec GENERAL JOURNAL Date Accounts Debit Credit various 31-Dec GENERAL JOURNAL Date Accounts Debit Credit 16-Dec 31-Dec
Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that would be needed for the initial recording and subsequent end-of-20X3 adjusting entry. Assume the company uses the balance sheet approach, and the initial recording is to an asset account. The company has a calendar year-end and does not make any adjusting entries prior to December 31.
| (1) | The company purchased an 18-month insurance policy for $18,000 on June 1, 20X3. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (2) | The company started 20X3 with $20,000 in supplies (this was previously recorded, and you do not need to make an entry for the beginning balance), purchased $30,000 in supplies during the year, and found only $13,000 in supplies on hand at the end of 20X3. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (3) | The company paid $2,500 to rent a truck. The rental period began on December 16, 20X3, and ends on February 14, 20X4.
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Related questions
Part A
The following account balances pertain to the Jasper Manufacturing Co. at December 31, 20X3 (before adjusting entries).
| Debit | Credit | |
| Cash ................................................................................ | $300,000 | |
| Prepaid Insurance ............................................................. | 50,000 | |
| Land ................................................................................ | 400,000 | |
| Accounts Payable ............................................................. | 30,000 | |
| Common Stock ................................................................. | 250,000 | |
| Retained Earnings ............................................................. | 150,000 | |
| Service Revenue ............................................................... | 650,000 | |
| Wages Expense ................................................................. | 150,000 | |
| Rent Expense ................................................................... | 180,000 |
|
| Total ................................................................................ | $1,080,000 | $1,080,000 |
Additional information:
| (a) | Prepaid insurance in the trial balance represents an advance payment for 5 months of insurance made on November 1, 20X3. |
| (b) | In July, the accountant debited accounts payable for a $10,000 fine for a pollution violation; âEnvironmental Expenseâ should have been debited. |
| (c) | Rent expense in the trial balance represents an advance payment for 6 months rent paid on October 1, 20X3. The Company begins occupying the property on that date. |
| (d) | Unpaid and unrecorded wages earned by employees at December 31, 20X3, were $60,000. |
| (e) | Accrue income taxes for 20X3 at 30% on pretax income. |
Required:
(1) Prepare adjusting entries to Jasper Co.'s accounts at December 31, 20X3. Each entry should be made in general journal format. Identify each entry by using the letter of the paragraph containing the additional information for the entry.
(2) Prepare the current year income statement
(3) Prepare the current year balance sheet.
(4) Prepare the closing entries.
| Promise Enterprises acquired 80 percent of Brown Corporationâs voting common stock on January 1, 20X3, for $376,000. At that date, the fair value of the noncontrolling interest of Brown Corporation was $94,000. Immediately after Promise acquired its ownership, Brown purchased 70 percent of Tann Companyâs stock for $185,500. The fair value of the noncontrolling interest of Tann Company was $79,500 at that date. During 20X3, Promise reported operating income of $270,000 and paid dividends of $90,000. Brown reported operating income of $160,000 and paid dividends of $50,000. Tann reported net income of $60,000 and paid dividends of $10,000. At January 1, 20X3, the stockholdersâ equity sections of the balance sheets of the companies were as follows: |
| Promise Enterprises | Brown Corporation | Tann Company | ||||||||||
| Common Stock | $ | 230,000 | $ | 210,000 | $ | 140,000 | ||||||
| Additional Paid-In Capital | 160,000 | 70,000 | 80,000 | |||||||||
| Retained Earnings | 380,000 | 190,000 | 45,000 | |||||||||
| Total Stockholdersâ Equity | $ | 770,000 | $ | 470,000 | $ | 265,000 | ||||||
| Required: | |
| a. | Prepare the journal entries recorded by Brown for its investment in Tann during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| b. | Prepare the journal entries recorded by Promise for its investment in Brown during 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| c. | Prepare the consolidation entries related to Brownâs investment in Tann and Promiseâs investment in Brown that are needed in preparing consolidated financial statements for Promise and its subsidiaries at December 31, 20X3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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