Question

Applying the time-period concept

Consider the following situations:

a. Business receives $2,000 on January 1 for 10-month service contract for the period January 1 through October 31.

b. Total salary for all employees is $3,000 per month. Employees are paid on the 1st and 15th of the month.

c. Work performed but not yet billed to customers for the month is $900.

d. The company pays interest on its $10,000, 6% note payable of $50 on the first day of each month.

Requirement

1. Assume the company records adjusting entries monthly. Calculate the amount of each adjustment

Answer 1

a) $200

b) $3,000

c) $900

d) $50

Step-by-step explanation:

The amount of each adjustment will be as follows

a) Business receives $2,000 on January 1 for 10-month service contract for the period January 1 through October 31.

Thus,

Monthly amount

= Total amount ÷ Duration from January 1 through October 31.

= $2,000 ÷ 10

= $200

b) Total salary for all employees is $3,000 per month. Employees are paid on the 1st and 15th of the month.

since the salary is paid per month it will be remain $3,000 after adjusting

c) The bill for the customer for the month is $900

d) The interest payable will remain same as $50 is paid each month