Financial and Managerial Accounting

Financial and Managerial Accounting

P4-4A Preparing Adjusting Entries from a Trial Balance.

Campus Theater adjusts its accounts every month. Below is the company’s unadjusted trial balance dated August 31, 2011. Additional information is provided for use in preparing the company’s adjusting entries for the month of August. ( Bear in mind that adjusting entries have already been made for the first seven months of 2011, but not for August.)

Campus Theater

Unadjusted Trial Balance

August 31, 2011

Cash  20,000

Prepaid film rental 31,200

Land 120,000

Building 168,000

Accumulated depreciation: Building 14,000

Fixtures and equipment 36,000

Accumulated depreciation: fixtures and equipment 12,000

Notes Payable  180,000

Accounts Payable  4,400

Unearned admissions revenue (YMCA)  1,000

Income tax payable  4,740

Capital Stock  40,000

Retained earning  46,610

Dividends  15,000

Admissions Revenue  305,200

Concessions Revenue  68,500

Salaries expense  94,500

Film rental expense  9,500

Utilities expense  9,500

Depreciation expense: building  4900

Depreciation expense: fixtures & equipment  4,200

Interest expense  10,500

Income tax expense  40,000

Total                                        $622,300         $622,300

Other Data

1. Film rental expense for the month is $ 15,200. However, the film rental expense for several months has been paid in advance.

2. The building is being depreciated over a period of 20 years ( 240 months).

3. The fixtures and equipment are being depreciated over a period of five years ( 60 months).

4. On the first of each month, the theater pays the interest that accrued in the prior month on its note payable. At August 31, accrued interest payable on this note amounts to $ 1,500.

5. The theater allows the local YMCA to bring children attending summer camp to the movies on any weekday afternoon for a fixed fee of $ 500 per month. On June 28, the YMCA made a $ 1,500 advance payment covering the months of July, August, and September.

6. The theater receives a percentage of the revenue earned by Tastie Corporation, the concessionaire operating the snack bar. For snack bar sales in August, Tastie owes Campus Theater $ 2,250, payable on September 10. No entry has yet been made to record this revenue. (Credit Concessions Revenue.)

7. Salaries earned by employees, but not recorded or paid as of August 31, amount to $ 1,700. No entry has yet been made to record this liability and expense.

8. Income taxes expense for August is estimated at $ 4,200. This amount will be paid in the September 15 installment payment.

9. Utilities expense is recorded as monthly bills are received. No adjusting entries for utilities expense are made at month- end.

Instructions

a. For each of the numbered paragraphs, prepare the necessary adjusting entry (including an explanation).

b. Refer to the balances shown in the unadjusted trial balance at August 31. How many months of expense are included in each of the following account balances? (Remember, Campus Theater adjusts its accounts monthly. Thus, the accounts shown were last adjusted on July 31, 2011.)

1. Utilities Expense

2. Depreciation Expense

3. Accumulated Depreciation: Building

c. Assume the theater has been operating profitably all year. Although the August 31 trial balance shows substantial income taxes expense, income taxes payable is a much smaller amount. This relationship is quite normal throughout much of the year. Explain.

 

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