Part 1 (20 points) For Game Outlet, all regular transactions for the month of February have already recorded and posted; they are reflected in the attached general ledger detail (T-accounts) and unadjusted trial balance as of 2/28/ 2017.
One February month-end adjusting journal entry (A as below) is provided to you as an example.
A. On Jan.2, Game Outlet the rent on its building. The rent is $7,200 per year and must be prepaid on the first day of each year. The following is the journal entry that was made on that day:
1/2/2017 AΓΒ Prepaid Rent 7,200
ΓΒ― Cash 7,200
Pay 1 yearΓ’ΒΒs rent in advance
Related to this prepaid rent, one February month-end adjusting journal entry has already been prepared, posted to the general ledger (T-accounts), and entered onto the trial balance worksheet.
2/28/17 OEΓΒ― Rent Expense 600
AΓΒ― Prepaid Rent 600
Incurred 1 month of rent expense against prepaid rent account
REQUIRED: Determine whether or not an adjusting entry is necessary in February for each event below (B thru F). Use the information given to prepare any necessary month-end adjusting journal entry, in proper form (include AΓΒ―, LΓΒ, etc.)
B. On Jan. 2, 2017, Game Outlet purchased $13,000 of equipment, paying cash. The equipment has an expected useful life of 10 years and will be worth $1,000 at the end of 10 years. Following is the journal entry that was made on that day:
1/2/2017 AΓΒ Property, Plant & Equipment 13,000
ΓΒ― Cash 13,000
Purchased equipment (10 yr life, $1000 salvage value)
As of the end of February, Game Outlet had used another month of its equipmentΓ’ΒΒs useful life (assume straight-line depreciation). If an adjusting journal entry is needed as of 2/28/2017, write it below (in proper form). If no adjusting entry is needed, write Γ’ΒΒNo Entry Needed.Γ’ΒΒ
C. On Jan. 4, 2017, Game Outlet received a 3-year $240,000, 10% bank loan that pays interest semi-annually on June 30 and December 31 of each year. Following is the journal entry that was made on that day:
1/4/2017 AΓΒ Cash 240,000
LΓΒ Note Payable 240,000
Received sublet rent for 12 months from 1/15/2017 - 1/14/2018
As of the end of February, Game Outlet had incurred (but did not pay) interest expense on its loan. If an adjusting journal entry is needed as of 2/28/2017, write it below (in proper form). If no adjusting entry is needed, write Γ’ΒΒNo Entry Needed.Γ’ΒΒ
D. On Jan. 15, Game Outlet sublet a small portion of the store to Ashley who opens a costume shop for $150 per month. On that same day, Ashley pays a yearΓ’ΒΒs rent in advance. Following is the journal entry that was made on that day:
1/15/2017 AΓΒ Cash 1,800
LΓΒ Unearned Rent Revenue 1,800
Received sublet rent for 12 months from 1/15/2017 - 1/14/2018
As of the end of February, Game Outlet had earned rent for February for the portion subleased to Ashley. If an adjusting journal entry is needed as of 2/28/2017, write it below (in proper form). If no adjusting entry is needed, write Γ’ΒΒNo Entry Needed.Γ’ΒΒ
E. As of the end of February, Game Outlet earned (but did not collect) interest on its month-end cash balance for the month of February, which is based on the annual interest rate of 10%. Assume entire CASH balance earns interest for 1 complete month in February. If an adjusting journal entry is needed as of 2/28/2017, write it below (in proper form). If no adjusting entry is needed, write Γ’ΒΒNo Entry Needed.Γ’ΒΒ
F. As of the end of February, Game Outlet incurred (but did not pay) income tax expense on its income before taxes and tax rate is 40%. If an adjusting journal entry is needed as of 2/28/2017, write it below (in proper form). If no adjusting entry is needed, write Γ’ΒΒNo Entry Needed.Γ’ΒΒ
