Financial Accounting I – IV
BBA | BBA-BI | BBA-TT | BCIS 1st
PU 2015 Spring Q. No. 17
Prepare adjusting entries on December, 31 from the following information. 
a. The company’s inventory of office supplies on December 1 was 2,850. The company bought supplies costing Rs. 4,710 in December. The inventory of office supplies on December 31 totaled Rs. 1,930.
b. The company paid rent for six-month at Rs. 2,500per month in advance on December 1 and charged it to prepaid rent.
c. The company had not paid December salary of Rs.4,900 at the month-end.
d. On 9 December, a customer paid an advance of Rs.9,300 for future services. The company provided services worth Rs. 7,100 to the customer in December.
e. The company made a three-year bank deposit ofRs. 20,000 on December 1. The deposit carried interest at 12 percent per annum.
f. The company bought equipment costing Rs. 13,000on November 1. The equipment had an estimated useful life of 10 years at the end of which it has salvage value Rs. 1,000.
g. Income tax payable for the year is estimated to be Rs. 2,100.
Solution to this question:
On December 31
Supplies expenses a/c Dr. Rs. 5,630
Office supplies a/c Rs. 5,630
(To record the supplies expenses for the month)
Rent expenses a/c Dr. Rs. 2,500
Prepaid rent a/c Rs. 2,500
(To record the rent expenses for the month)
Salary expenses a/c Dr. Rs. 4,900
Salary payable a/c Rs. 4,900
(To record the payment due of salary for the month)
Unearned service revenue a/c Dr. Rs. 2,200
Service revenue a/c Rs. 2,200
(To record the remaining unearned service revenue for the month)
Interest receivable a/c Dr. Rs. 200
Interest revenue a/c Rs. 200
(To record the interest revenue earned)
Depreciation expenses – Equipment a/c Dr. Rs. 200
Accumulated depreciation a/c Rs. 200
(To record the depreciation expenses on equipment for the two-month)
Income tax expenses a/c Dr. Rs. 175
Income tax payable a/c Rs. 175
(To record the income tax payable for the month December)
a. Calculation of supplies expenses
|Beginning amount of supplies|
Add: Purchase during the month
Less: Supplies on hand at the end of the month
|Supplies expenses||Rs. 5,630|
|Total unearned service revenue |
Less: Earned during the month
|Remaining unearned service revenue||Rs. 2,200|
e. Interest amount = Rs. 20,000 ×0.12 ×1 / 12 = Rs. 200
f. calculation of depreciation on equipment
yearly depreciation = original cost – salvage value / estimated life
= 13,000 – 1,000 / 10 = Rs. 1,200
Depreciation for two-month = Rs 1,200 × 2 / 12 = Rs. 200
f. Income tax payable for a month = 2,100 / 12 =Rs. 175