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Assignment A-6.1
Tony Audio Company is a retailer of stereo equipment. Tony Audio has been in business for 1 month. The company's unadjusted trial balance, January 31, 20X8, has the following accounts:
| Accounts | Amount | |
| Cash | $ 71,700.00 | |
| Accounts Receivable | $ 160,300.00 | |
| Notes Receivable | $ 40,000.00 | |
| Merchandise Inventory | $ 250,200.00 | |
| Prepaid Rent | $ 15,000.00 | |
| Store Equipment | $ 114,900.00 | |
| Notes Payable | $ 100,000.00 | |
| Accounts Payable | $ 117,100.00 | |
| Unearned Rent Revenue | $ 3,000.00 | |
| Paid-in-capital | $ 400,000.00 | |
| Sales | $ 160,000.00 | |
| Cost of Goods Sold | $ 100,000.00 | |
| Wages Expense | $ 28,000.00 | |
| Total | $ 780,100.00 | $ 780,100.00 |
Consider the following adjustments on January 31:
- January depreciation, $1,000.
- On January 2, rent of $15,000 was paid in advance for the first quarter of 20X8 as shown by the debit balance in the Prepaid Rent account. Adjust for January rent.
- Wages earned by employees during January but not paid as of January 31 were $3,750.
- Tony borrowed $100,000 from the bank on January 1. The explicit transaction was recorded when the busi9ness began, as shown by the credit balance in the Notes payable account. The principal and 9% interest are to be paid 1 year later (January 1, 20X9). However, an adjustment is necessary now for the interest expense of 1/12 x 0.09 x $100,000 = $750 for January.
- On January 1, a cash loan of $40,000 was made to a local supplier, as shown by the debit balance in the Notes Receivable account. The promissory note stated that the loan is to be repaid 1 year later (January 1, 20X9), together with interest at 12% per annum. On January 31, an adjustment is needed to recognize the interest earned on the notes receivable.
- On January 15, a nearby corporation paid $3,000 cash to Tony Audio Company as an advance rental for Tony's storage space and equipment to be used temporarily from January 15 to April 15 (3 months). This $3,000 is the credit balance in the Unearned Revenue account. On January 31, an adjustment is needed to recognize the rent revenue earned for half a month.
- Income tax expense must be accrued on January income at a rate of 50% of income before taxes.
Questions
- Enter the trial balance amounts in the general ledger. Set up the new asset account, Accrued Interest Receivable, and the new asset-reduction account, the contra account, Accumulated Depreciation, Store Equipment. Set up the following new liability accounts: Accrued Wages Payable, Accrued Interest Payable, and Accrued Income Taxes Payable. Set up the following new expense and revenue accounts: Depreciation Expense, Rent Expense, Interest Expense, Interest Revenue, and Income Tax Expense.
- Journalize adjustments "a" to "g" above and post the entries to the ledger. Key entries by transaction later.
- Prepare an adjusted trial balance as of January 31, 20X8.
Assignment A-6.2
Nike, Inc. has many well-known products, including footwear, The company's balance sheet included ($ in millions):
| 31-May | ||
| 2007 | 2008 | |
| Prepaid Expenses | $ 190.9 | $ 196.2 |
| Income Tax Payable | $ - | $ 28.9 |
Suppose that during the fiscal year ended May 31, 2008, $210,000,000 cash was disbursed and charge to Prepaid Expenses. Similarly, $325,000,000 was disbursed for income taxes and charged to Income Taxes Payable.
- Assume that the Prepaid Expenses account relates to outlays for miscellaneous operating expense, for example, supplies, insurance, and short-term rentals. Prepare summary journal entries for (a) the disbursements and (b) the expenses for fiscal 2008.
- Assume that there were no other accounts related to income taxes. Prepare summary journal entries for (a) the disbursements and (b) the expenses for fiscal 2008.
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