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18 Feb 2018

ORIGINAL Question (This has been asked and answered on previous forums)

John's Boat Yard, Inc., repairs, stores, and cleans boats for customers. It is completing the accounting process for the year just ended on November 30. The transactions for the past year have been journalized and posted. The following data with respect to adjusting entries at year-end are available:

John's winterized (cleaned and covered) three boats for customers at the end of November, but did not record the service for $4,200.

On October 1, John's paid $1,680 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have been run except for three Thursdays in December to complete the 12-week contract.

John’s borrowed $258,000 at a 9 percent annual interest rate on April 1 of the current year to expand its boat storage facility. The loan requires John's to pay the interest quarterly until the note is repaid in three years. John's paid quarterly interest on July 1 and October 1.

The Johnson family paid John’s $4,080 on November 1 to store its sailboat for the winter until May 1 of the next fiscal year. John's credited the full amount to Unearned Storage Revenue on November 1.

John’s used boat-lifting equipment that cost $260,000; $26,000 was the estimated depreciation for current year.

Boat repair supplies on hand at the beginning of the current year totaled $18,100. Repair supplies purchased and debited to Supplies during the year amounted to $47,600. The year-end count showed $13,100 of the supplies on hand.

Wages of $5,300 earned by employees during November were unpaid and unrecorded at November 30. The next payroll date will be December 5 of the next fiscal year.

Current Questions: (Questions I am seeking help with - I am seeking explanations)

I am confused by this problem. The fiscal year for this company goes from November 30th to November 30th, from year to year? Is that correct?

We are then making adjusting entries to cover the remainder of the calendar year, which in this instance covers the month of December?

How is the answer to "C" regarding the payment of interest derived? I see that the company pays 9% interest on a $258,000 dollar loan, which equates to $21,600 dollars interest per year. It seems that the answer seeks the student to solely log two months interest or $3,600 dollars. But if the matter was paid on July 1st and Oct 1st, by the time of Nov. 30th would these transaction not have already been recorded??? What is going on here?

Also, specifcally with respect to part "F" concerning the cost of supplies - Would we not determine the unadjusted balance by combining the beginning balance ($18,100) + purchases ($47,600) to arrive at an unadjusted balance from which we would need to adjust down to the current level of supplies on hand ($13,100)? I do not understand how/why we would simply adjust from the beginning balance to the ending balance and assume that entries for the $47,600 dollars worth of supply purchases were not journaled and recorded. Are you able to explain this, as similar posts simply subtract beginning balance from ending balance and add entries to the ledger for the difference. (This differs from the text's example and I cannot tell what I should be reading within the context of the problem to know when to do what method.)

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Collen Von
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19 Feb 2018

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Cardon’s Boat Yard, Inc., repairs, stores, and cleans boats forcustomers. It is completing the accounting process for the yearjust ended, November 30, 2012. The transactions during 2012 havebeen journalized and posted. The following data with respect toadjusting entries are available:
a) Cardon’s winterized (cleaned and covered) three boats forcustomers at the end of November, but did not record the servicefor $2,700.
b) On October 1, 2012, Cardon’s paid $1,200 to the local newspaperfor an advertisement to run every Thursday for 12 weeks. All adshave been run except for three Thursdays in December to completethe 12-week contract.
c) Cardon’s borrowed $250,000 at a 12 percent annual interest rateon April 1, 2012, to expand its boat storage facility. The loanrequires Cardon’s to pay the interest quarterly until the note isrepaid in three years. Cardon’s paid quarterly interest on July 1and October 1.
d) The Johnson family paid Cardon’s $4,500 on November 1, 2012, tostore its sailboat for the winter until May 1, 2013. Cardon’scredited the full amount to Unearned Storage Revenue on November1.
e) Cardon’s used boat-lifting equipment that coast $220,000;$22,000 was the estimated depreciation for 2012.
f) Boat repair supplies on hand at December 1, 2011, totaled$16,500. Repair supplies purchased and debited to Supplies duringthe year amounted to $46,000. The year-end count showed $12,400 ofthe supplies on hand.
g) Wages earned by employees during November 2012, unpaid andunrecorded at November 30, 2012, amounted to $3,800. The nextpayroll date will be December 5, 2012.
Required:
1. Identify each of these transactions as a deferred revenue,deferred expense, accrued revenue, or accrued expense.
2. Prepare the adjusting entries that should be recorded forCardon’s at November 30, 2012.

From the book financial accounting for undergraduates third edition problem P3-5B, The following information relates to the December 31 adjustments for Water Barrier, a firm providing waterproofing services for commercial and residential customers. The firm’s fiscal year ends December 31; no adjusting entries have been made during the year.

The firm paid a $3,000 premium for a three-year insurance policy, coverage to begin October 1. The premium payment was debited to Prepaid Insurance.

Weekly wages for a five-day work week total $1,250 payable on Fridays. December 31 is a Thursday.

Water Barrier received $4,800 in November for services to be performed during December through February of the following year. When received, this amount was credited to Unearned Service Fees. By December 31, one-third of this amount was earned.

Water Barrier receives a 5% commission from the manufacturer on sales of a waterproofing agent to Water Barrier’s customers. By December 31, Water Barrier had sales of $10,000 (during November and December) for which no commissions had been received or recorded.

During December, fuel oil costs of $650 were incurred to heat the firm’s buildings. Because the monthly bill from the oil company has not yet arrived, no entry has been made for this amount (fuel oil costs are charged to Utilities Expense).

The Supplies account has a balance of $17,500 on December 31. A count of supplies on December 31 indicates that $3,500 worth of supplies are still on hand.

On December 1, Water Barrier borrowed $10,000 from the bank, giving a note payable. Interest is not payable until the note is due near the end of the following January. However, the interest for December is $95.

Water Barrier rents parking spaces in its lot to firms in the office building next door. On December 1, Water Barrier received $8,000 as advance payments to cover parking privileges in the lot for December through March of the following year. When received, the $8,000 was credited to Unearned Parking Fees.

11. Paid the sales tax collected on $105,000 of the alarm sales.

12. Collected $198,000 of accounts receivable during the year.

13. Paid installers and other employees a total of $96,000 for salaries for the year. Assume the Social Security tax rate is 6 percent and the Medicare tax rate is 1.5 percent. Federal income taxes withheld amounted to $10,600. No employee exceeded $110,000 in total wages. The net salaries were paid in cash.

14. On October 1, declared a dividend on the preferred stock and a $1 per share dividend on the common stock to be paid to shareholders of record on October 15, payable on November 1, 2021.

15. Paid $1,625 in warranty repairs during the year.

16. On November 1, 2021, paid the dividends that had been previously declared.

17. Paid $18,500 of advertising expense during the year.

18. Paid $6,100 of utilities expense for the year.

19. Paid $9,200 of the Employee Income Tax Payable, $5,280 of the FICA Tax – Soc. Sec. Tax Payable and $1,320 of the FICA Tax – Medicare Tax Payable. Also, paid the Payroll Tax Expense for the 7.5% employer matching of FICA taxes on $88,000 of salaries.

20. Paid the accounts payable.

21. Paid bond interest and amortized the discount. The bond was issued in 2020 and pays interest at 6 percent.

22. Paid the annual installment of $14,238 on the amortized note. The interest rate for the note is 7 percent. Adjustment

23. There was $190 of supplies on hand at the end of the year.

24. Recognized the uncollectible accounts expense for the year using the allowance method. Pacilio now estimates that 1 percent of sales on account will not be collected.

25. Recognized depreciation expense on the equipment, van, and building. The equipment, purchased in 2018, has a five-year life and a $2,000 salvage value. The van has a four-year life and a $6,000 salvage value. The building has a 40-year life and a $10,000 salvage value. The company uses straight-line for the equipment and the building. The van is fully depreciated.

26. The alarm systems sold in transaction 7 were covered with a one-year warranty. Pacilio estimated that the warranty cost would be 2 percent of alarm sales.

27. The unemployment tax on the three employees has not been paid. Record the accrued unemployment tax on the salaries for the year. The unemployment tax rate is 4.5 percent and gross wages for all three employees exceeded $7,000.

28. Recognized the employer Social Security and Medicare payroll tax that has not been paid on $8,000 of salaries expense.

Indicate whether the transaction increases (+), decreases (–), or increases and decreases (+/-) for each element of the financial statements. Also, in the Cash Flow column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity. The first transaction is recorded as an example.

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