90.2K

Verified Solution

Link Copied!

Assume it is now December 31, 2021, and Nicole has just completed her first year of operations at Nicoles Getaway Spa. After looking through her trial balance, she noticed that there are some items that have either not been recorded or are no longer up-to-date.

Part 1 -- For each of the items listed, identify whether an accrual adjustment, a deferral adjustment, or no adjustment is required.

Part 2 -- For each of the deferral adjustments, prepare the initial journal entry that would have been recorded.

Part 3 -- Prepare the adjusting entries that should be recorded for Nicoles Getaway Spa at December 31, 2021, assuming that the items have not been adjusted prior to December 31, 2018. Use T accounts, to help you analyze.

a) Nicoles Getaway Spa is renting its space at a cost of $600 per month. On September 1, 2021, Nicole paid eight months rent in advance using cash. This prepayment was recorded in the account Prepaid Rent back in September. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount Initial Entry if deferral Dec. 31

b) The building, purchased at the beginning of the year for $47,000 cash, has estimated depreciation of $2,000 for 2021, but none has been recorded yet. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount Initial Entry if deferral Dec. 31

c) Salaries and wages to the support staff at Nicoles Getaway Spa have been paid up to December 26, 2021. The support staff worked both December 27 and 28 and will be paid on January 5, 2022. Salaries and wages amount to $1,000 per day. The spa was closed December 29-31. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount Initial Entry if deferral Dec. 31 15

d) The insurance policy, purchased on June 1 for $3,000 cash, provides coverage for 12 months. The part of the insurance coverage for June-December has not been used up. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount Initial Entry if deferral Dec. 31

e) The unadjusted amount in the Spa Supplies account was $2,000 at December 31, 2021, for supplies purchased on account. A year-end count showed $700 of supplies remain on hand. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount Initial Entry if deferral Dec. 31

f) On the last day of December, a customer obtained spa services by using a $90 gift certificate that was purchased earlier in the month. Use of the gift certificate to pay for these services had not yet been recorded. accrual deferral no adjustment Date Account Title Classification (A-L-SE-R-E) or Debit or Credit Amount

Answer & Explanation Solved by verified expert

See Answer