Exercise 1 Adjusting and paying accrued expenses
a. On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.
b. A $900,000 note payable requires 12% annual interest, or $9,000 to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $3,000 of interest expense has accrued.
c. Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on Tuesday of this year, which means that the employees had worked two days since the last payday. The next payday is May 3.
The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses. (Use 360 days a year. Do not round intermediate calculations.)
Exercise 2 Preparing adjusting entries
a. One-third of the work related to $15,000 cash received in advance is performed this period.
b. Wages of $8,000 are earned by workers but not paid as of December 31, 2015.
c. Depreciation on the company's equipment for 2015 is $18,000.
d. The Office Supplies account had a $240 debit balance on December 31, 2014. During 2015, $5,200 of office supplies are purchased. A physical count of supplies at December 31, 2015, shows $440 of supplies available.
e. The Prepaid Insurance account had a $4,000 balance on December 31, 2014. An analysis of insurance policies shows that $1,200 of unexpired insurance benefits remain at December 31, 2015.
f. The company has earned (but not recorded) $1,050 of interest from investments in CDs for the year ended December 31, 2015. The interest revenue will be received on January 10, 2016.
g. The company has a bank loan and has incurred (but not recorded) interest expense of $2,500 for the year ended December 31, 2015.
The company must pay the interest on January 2, 2016.
For each of the above separate cases, prepare adjusting entries required of financial statements for the year ended (date of) December 31, 2015.
(Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance of work are initially recorded as liabilities.)