Page 133 - Accounting Principles (A Business Perspective)

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• For a particular item such as sales or net income, select a base year and express all dollar amounts in other
years as a percentage of the base year dollar amount.

Demonstration problem
Among other items, the trial balance of Korman Company for 2010 December 31, includes the following account
balances:
Debits Credits

Supplies on Hand $ 6,000
Prepaid Rent 25,200
Buildings 200,000
Accumulated Depreciation—Buildings $33,250
Salaries Expense 124,000
Unearned Delivery Fees 4,000

Some of the supplies represented by the USD 6,000 balance of the Supplies on Hand account have been
consumed. An inventory count of the supplies actually on hand at December 31 totaled USD 2,400.
On May 1 of the current year, a rental payment of USD 25,200 was made for 12 months’ rent; it was debited to
Prepaid Rent.
The annual depreciation for the buildings is based on the cost shown in the Buildings account less an estimated
residual value of USD 10,000. The estimated useful lives of the buildings are 40 years each.
The salaries expense of USD 124,000 does not include USD 6,000 of unpaid salaries earned since the last
payday.

The company has earned one-fourth of the unearned delivery fees by December 31.
Delivery services of USD 600 were performed for a customer, but a bill has not yet been sent.
a. Prepare the adjusting journal entries for December 31, assuming adjusting entries are prepared only at year-
end.
b. Based on the adjusted balance shown in the Accumulated Depreciation—Buildings account, how many years
has Korman Company owned the building?

Solution to demonstration problems
KORMAN COMPANY General Journal
Date Account Titles and Explanation Post. Debit Credit
Ref.
2010 Dec. 31 Supplies Expense 3 6 0 0
Supplies on Hand 3 6 0 0
To record supplies expense ($6,000 - $2,400).

31 Rent Expense 1 6 8 0 0
Prepaid Rent 1 6 8 0 0
To record rent expense ($25,200 X 8/12).

31 Depreciation Expense—Buildings 4 7 5 0
Accumulated Deprecation—Buildings 4 7 5 0
To record depreciation ($200,000 - $10,000 / 40 years).

31 Salaries Expense 6 0 0 0
Salaries Payable 6 0 0 0

Accounting Principles: A Business Perspective 134 A Global Text