Question

John's Boat Yard, Inc., repairs, stores, and cleans boats for customers. It is completing the accounting process for the year just ended on November 30. The transactions for the past year have been journalized and posted. The following data with respect to adjusting entries at year-end are available:

John's winterized (cleaned and covered) three boats for customers at the end of November, but did not record the service for $4,200.

On October 1, John's paid $1,680 to the local newspaper for an advertisement to run every Thursday for 12 weeks. All ads have been run except for three Thursdays in December to complete the 12-week contract.

Johnâs borrowed $258,000 at a 9 percent annual interest rate on April 1 of the current year to expand its boat storage facility. The loan requires John's to pay the interest quarterly until the note is repaid in three years. John's paid quarterly interest on July 1 and October 1.

The Johnson family paid Johnâs $4,080 on November 1 to store its sailboat for the winter until May 1 of the next fiscal year. John's credited the full amount to Unearned Storage Revenue on November 1.

Johnâs used boat-lifting equipment that cost $260,000; $26,000 was the estimated depreciation for current year.

Boat repair supplies on hand at the beginning of the current year totaled $18,100. Repair supplies purchased and debited to Supplies during the year amounted to $47,600. The year-end count showed $13,100 of the supplies on hand.

Wages of $5,300 earned by employees during November were unpaid and unrecorded at November 30. The next payroll date will be December 5 of the next fiscal year.

Current Questions: (Questions I am seeking help with - I am seeking explanations)

I am confused by this problem. The fiscal year for this company goes from November 30th to November 30th, from year to year? Is that correct?

We are then making adjusting entries to cover the remainder of the calendar year, which in this instance covers the month of December?

How is the answer to "C" regarding the payment of interest derived? I see that the company pays 9% interest on a $258,000 dollar loan, which equates to $21,600 dollars interest per year. It seems that the answer seeks the student to solely log two months interest or $3,600 dollars. But if the matter was paid on July 1st and Oct 1st, by the time of Nov. 30th would these transaction not have already been recorded??? What is going on here?

Also, specifcally with respect to part "F" concerning the cost of supplies - Would we not determine the unadjusted balance by combining the beginning balance ($18,100) + purchases ($47,600) to arrive at an unadjusted balance from which we would need to adjust down to the current level of supplies on hand ($13,100)? I do not understand how/why we would simply adjust from the beginning balance to the ending balance and assume that entries for the $47,600 dollars worth of supply purchases were not journaled and recorded. Are you able to explain this, as similar posts simply subtract beginning balance from ending balance and add entries to the ledger for the difference. (This differs from the text's example and I cannot tell what I should be reading within the context of the problem to know when to do what method.)

Answer 1

Answer:

Please find the solution below

Explanation:

Date Account Title                       Debit           Credit

Accounts Receivable              4200  

Service revenue                                            4200

(Revenue for the three boats)  

   

Nov.30 Advertising Expense       1260  

Prepaid Advertising                                    1260

(Expense for 9 of the 12 weeks recorded) - (1,680/12) x 9  

   

Nov.30 Interest Expense *             3870  

Interest Payable                                          3780

(Interest for Oct. And Nov. Recorded that will be paid on Jan.1)  

   

Amount borrowed                    258000  

Rate of interest 9%  

Annual interest                                                23220  

Interest for October and November *                   3870  

   

Nov.30 Unearned Storage Revenue 680  

Storage Revenue                                            680

(Storage revenue for 1 month)  

   

Storage revenue $4,080 received for the period from November 1 to May 1. (Six months)

Storage revenue for November = 4,080 /6 = $680  

   

Nov.30 Depreciation expense 26000  

Accumulated Depreciation - equipment  26000

(Depreciation expense of the boat lifting equipment)  

   

Nov.30 Supplies Expense         52600  

Supplies                                                        52600

(Use of supplies during the year)  

   

Balance of Supplies, beginning 18100  

Purchases of supplies 47600  

Total 65700  

Balance of Supplies, ending -13100  

Supplies used during the year 52600  

   

Nov.30 Wages Expense 5300  

Wages Payable                                        5300

(Wages expense incurred and unpaid for November)