Ace Accounting’s controller, John Ace, hired an assistant, Annette Black. While guiding her in financial statement preparations, John Ace encountered opposition from Annette Black. Shedisagreed with making an adjusting journal entry at December 31 year end to accrue staff bonuses, as the bonuses were not paid. She wanted to wait until the staff bonuses were paid in February to record the bonuses. Her reasoning was that the results would be identical.
Write a business memo to explain to Annette Black why the adjusting journal entry to accrue the staff bonuses is or is not required.
The format of the business memo should be the following:
DATE: (fill in)
TO: (fill in)
FROM: (fill in)
SUBJECT: Why the adjusting journal entry for staff bonuses is or is not required
Jane’s Technically Correct, a proprietorship, had a December 31 year end.
Record the initial and subsequent transaction for each of the following independent situationsusing the numerals to group the transaction:
- June 01: Jane’s Technically Correct received $ 24,000 for a 12-month service contract.
December 31: A year-end adjusting journal entry is required to update the balance.
- January 13: Jane’s Technically Correct did $ 10,000 software updates for a client.Payment will be received at the end of February.
February 28: A journal entry is required to record receipt of payment.
- November 01: Jane’s Technically Correct purchased $ 7,000 office supplies on account.
December 31: Jane counted the office supplies and noted that there was $ 6,000 supplies on hand. Thus, the balance needs to be updated.
- May 01: Because of additional job contracts, Jane’s Technically Correct leased a computer for $900, which represented a 5-month rental contract.
October 01: Jane’s Technically Correct needs to adjust the prepaid account.
Bob’s Best Ads, a proprietorship created by Bob Best,did consulting work relating to commercials for television and ads for newspapers. Bob’s Best Ads prepared the following financial statement:
|Bob’s Best Ads|
|Unadjusted Trial Balance|
|Accumulated Amortization, Computer Equipment||$0|
|Accumulated Amortization, Furniture||0|
|Bob Best, Capital||130,000|
|Bob Best, Withdrawals||50,000|
In December 2018, the following transactions occurred:
- December 01: Bob’s Best Ads paid $ 50,000 cash for a television ad, which promotes the great work that Bob’s Best Ads can do for its clients. Itwill air on television in February 01, 2019.
- December 05: Bob Best withdrew $ 20,000 cash from his personal bank account, to purchase a watch for his dad’s birthday.
- December 10: Bob’s Best Ads purchased $ 3,000 supplies on account.
- December 12: A client gave Bob’s Best Ads a cheque for $ 25,000 for work to be done in March 2019.
- December 15: Bob’s Best Ads provided $ 13,000 consulting services for a client; the client will pay Bob’s Best Ads in March 2019.
- December 31: Bob Best did a physical count of office supplies, and he determined that $ 5,000 was on hand.
- The computer equipment, purchased on January 02, 2018, was expected to last 5 years.The computer equipment had no residual value after 5 years. Bob’s Best Ads used the straight-line method of amortization.
- The furniture, purchased on January 02, 2018, was expected to last 10 years; it had no expected value after 10 years. Bob’s Best Ads used the straight-line method of amortization.
- Bob Best received a year-end bonus of $ 9,000, which will be paid in March 2019.
- Journalize the above transactions affecting Bob’s Best Ads. Provide a written explanation for each journal entry recorded or not recorded.
- Prepare a December 31, 2018 adjusted trial balance for Bob’s Best Ads. Record the expenses in alphabetical order.
- Prepare a December 31, 2018 income statement for Bob’s Best Ads.
- Prepare a December 31, 2018 statement of owner’s equity for Bob’s Best Ads. Assume that there have been no changes to the capital account since January 01, 2018.
- Prepare a December 31, 2018 balance sheet for Bob’s Best Ads.
Golden Designs incurred the following 2018 transactions:
- November 01: Paid $ 60,000 to place an ad for 4 months on the internet.
- December 01: Received $ 100,000 cash payment to produce a monthly coin for the next 5 months.
- Open T-accounts for Prepaid Advertising, Advertising Expense, Unearned Revenue, and Revenue.
- Prepare a journal entry that would debit an asset account, Prepaid Advertising.Prepare a journal entry that would credit a liability account, Unearned Revenue.No explanations are needed.
- Prepare journal entries to record the December 31, 2018 adjustments.
- Post the journal entries to the T-accounts. No posting references are needed. Show the December 31, 2018 balances on the T-accounts.
- Repeat requirements A through D above.This time, instead of debiting Prepaid Advertising, debit Advertising Expense.This time, instead of crediting Unearned Revenue, credit Revenue.