The following 2007 information is available concerning the Drake Compa

QUESTION

The following 2007 information is available concerning the Drake Company, which adjusts and closes its accounts every December 31:1. Salaries accrued but unpaid total $2,840 on December 31, 2007.2. The $247 December utility bill arrived on December 31, 2007 and has not been paid or recorded.3. Buildings with a cost of $78,000, 25-year life, and $9,000 residual value are to be depreciated; equipment with a cost of $44,000, eight-year life, and $2,000 residual value is also to be depreciated. The straight-line method is to be used.4. A count of supplies indicates that the Store Supplies account should be reduced by $128 and the Office Supplies account reduced by $397 for supplies used during the year.5. The company holds a $6,000, 12% (annual rate), six-month note receivable dated September 30, 2007 from a customer. The interest is to be collected on the maturity date.6. Bad debts expense is estimated to be 1% of annual sales. 2007 sales total $65,000.7. An analysis of the company insurance policies indicates that the Prepaid Insurance account is to be reduced for the $528 of expired insurance.8. A review of travel expense reports indicates that $310 advanced to sales personnel (and recorded as Travel Expenses) has not yet been used by these personnel.9. The income tax rate is 30% on current income and will be paid in the first quarter of 2008. The pretax income of the company before adjustments is $18,270.RequiredJournalize the necessary adjusting entries for the company at the end of 2007. Show supporting calculations in your journal entry explanations.
Answer Working note : Entry 3 Depreciation amount for building = (cost residual value)/ life of the asset = (78000 9000)/25 = $2760 Depreciation amount for equipment = (cost residual value)/ life of the asset = (44000 2000)/8 =$5250 Total depreciation = $2760+$5250 = $8010 Entry 4 The amount Debited to supplies expense account is calculated by summing up the amounts by which¦

e store supplies and office supplies are to be reduced. Supplies expense = $128 + $397 = $525 Entry 5 Interest on note receivable = $6000 x 3/12 x 12/100 =$180 Entry 6 Amount of doubt ful debts = 1% of sales =1% x 65000 = $650 Entry 9 Income tax payable = 30% x $18270 =$5481

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