Question

The following additional information is available at June 30, 2022:

(i) Store Supplies on hand at June 30, 2022 amounted to $95,400.
(ii) Insurance of $184,950 was paid on April 1, 2022, for 9-months to December 2022
(iii) Rent was prepaid on March 1, 2022, for 7-months to September 2022.
(iv) The furniture and fixtures have an estimated useful life of 10 years and is being depreciated on the straight-line method down to a residual value of $10,000.
(v) The motor truck was acquired on February 1, 2022, and is being depreciated over 5 years on the double-declining balance method of depreciation, down to a residue of $15,000
(vi) Salaries earned by employees not yet paid amounted to $195,000 at June 30, 2022.
(vii) Accrued interest expense as of June 30, 2022, $50,550.
(viii) On June 30, 2022, $66,000 of the previously unearned sales revenue had been earned.
(ix) The aging of the Accounts Receivable schedule at June 30, 2022 indicated that the Allowance for Bad Debts should be $100,000.
(x) After making all other adjustments, a physical count of inventory was done, which reveals that there was $1,115,500 worth of inventory on hand at June 30,2022
Other data:
(xi) The business is expected to make principal payments totalling $345,000 towards the loan during the fiscal year to June 30 ,2023
Prepare the necessary adjusting journal entries on June 30, 2022.

Answer 1

The question involves creating adjusting journal entries for various economic events like prepayments, depreciation, accruals, and asset valuation, which are essential for accurate financial reporting as of June 30, 2022. Adjustments include recognizing expenses, updating asset valuations, and acknowledging revenues earnt and liabilities incurred but not yet recorded.

Step-by-step explanation:

The student's question pertains to the additional information provided for adjustments needed at the fiscal year-end on June 30, 2022. This involves understanding how to make the necessary adjusting entries for a business to accurately reflect its financial position. Some of the adjustments relate to the valuation of inventory, depreciation of assets, and recognition of prepaid expenses and accrued liabilities. Correctly posting these adjusting journal entries is crucial for the preparation of financial statements according to accrual basis accounting.

Adjusting Journal Entries:

• Store Supplies: Expense any used supplies subtracting from the beginning balance to reach the $95,400 supplies on hand.
• Insurance: Allocate the expense since April 1, 2022, for three months of the 9-months total prepaid.
• Rent: Allocate prepaid rent from March 1, 2022, for four months of the 7-months total prepaid.
• Depreciation on furniture and fixtures: Calculate based on straight-line method considering residual value and record depreciation expense.
• Depreciation on motor truck: Apply the double-declining balance method considering the residual value and time since acquisition to record depreciation expense.
• Salaries Expense: Record the accrued salaries not yet paid.
• Interest Expense: Record the accrued interest expense.
• Revenue: Recognize the $66,000 of the sales revenue that was previously unearned.
• Allowance for Bad Debts: Update the allowance for doubtful accounts to match the new estimate of $100,000.
• Inventory: Adjust inventory account to the actual physical count of $1,115,500.

Each of these entries would include a debit to an expense or asset account and a credit to a liability, equity account, or contra-asset account as applicable.