Financial Accounting-I solution
From Unit IV Accrual accounting and adjustments
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2018 Fall Q. No. 13 (10 Marks)
Moon Star Inc. prepares monthly financial statements and therefore adjusts its accounts at the end of every month. Prepare necessary adjusting entries on June 30, 2017.
a. On June 1, 2017, Moon Star received an Rs. 10,000, 12%, 90-days note receivable from a customer for services rendered.
b. Office supplies totaling Rs. 6,000 were purchased during the month. The asset account supplies are increased whenever a purchase is made. A count in the storeroom on June 30, 2017, indicates that supplies on hand amount to Rs. 1,000. The supplies on hand at the beginning of the month total Rs. 2,000.
c. The company purchased machines last year for Rs. 170,000. The machines are expected to be used for four years and have an estimated salvage value of Rs. 2000.
d. The company operates seven days per week with a weekly payroll of Rs. 7,000. Wage earners are paid every Sunday. The last day of the month is Saturday, June 30.
Solution:
Adjusting Entries
Moon Star Inc.
On June 30, 2017
a. June 30, 2017
Interest receivable a/c Dr. Rs. 100
Interest revenue a/c Rs. 100
(To record the notes receivable from service rendered to the customer)
b. June 30, 2017
Supplies expenses a/c Dr. Rs. 7,000
Office supplies a/c Rs. 7,000
(To record the office supplies expenses occurred during the month)
c. June 30, 2017
Depreciation expenses a/c Dr. Rs. 3,500
Accumulated depreciation a/c Rs. 3,500
(To record the depreciation expenses for the month)
d. June 30, 2017
Wages expenses a/c Dr. Rs. 7,000
Wages payable a/c Rs. 7,000
(To record the wages expenses occurred for the month)
Working note for this adjusting entries
a. Interest receivable amount:
12% × 10,000, then
1,200 / 12
Rs. 100
b. Supplies expenses amount
Beginning supplies on hand 2,000
Add: New purchase 6,000
Less: Supplies on hand
at the end of the month 1000
Supplies expenses Rs. 7,000
c. Calculation of depreciation expense
Yearly depreciation amount for Machine
= Original cost (OC) – salvage value / Estimated life of the asset
= 1,70,000 – 2,000 / 4
= Rs. 42,000
Monthly depreciation amount
= 42,000 / 12
= Rs. 3,500
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