Adjusting Entries
On December 31, Wright Company noted the following transactions that occurred during
2008, some or all of which might require adjustment to the books.
(a) Payment of $3,100 to suppliers was made for purchases on account during the year and was not recorded.
(b) Building and land were purchased on January 2 for $210,000.The building’s fair market value was $150,000 at the time of purchase. The building is being depreciated over a 30 year life using the straight line method, assuming no salvage value.
(c) Of the $40,000 in Accounts Receivable, 5% is estimated to be uncollectible. Currently,
Allowance for Bad Debts shows a debit balance of $350.
(d) On August 1, $60,000 was loaned to a customer on a 12 month note with interest at an annual rate of 12%.
(e) During 2008, Wright received $12,500 in advance for services, 80% of which will be performed in 2009.The $12,500 was credited to sales revenue.
(f) The interest expense account was debited for all interest charges incurred during the year and shows a balance of $1,400. However, of this amount, $500 represents a discount on a 60 day note payable, due January 30, 2009.
Instructions:
1. Give the necessary adjusting entries to bring the books up to date.
2. Indicate the net change in income as a result of the foregoing adjustments.