Martin Towing Company is at the end of its accounting yearending December 31. The...

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Accounting

Martin Towing Company is at the end of its accounting yearending December 31. The following data that must be considered weredeveloped from the company’s records and related documents:
On January 1 of the current year, the company purchased a newhauling van at a cash cost of $28,000. Depreciation estimated at$3,500 for the year has not been recorded for the current year.
During the current year, office supplies amounting to $1,000were purchased for cash and debited in full to Supplies. At the endof last year, the count of supplies remaining on hand was $500. Theinventory of supplies counted on hand at the end of the currentyear was $150.
On December 31 of the current year, Lanie’s Garage completedrepairs on one of the company’s trucks at a cost of $2,600; theamount is not yet recorded by Martin and by agreement will be paidduring January of next year.
On December 31 of the current year, property taxes on land ownedduring the current year were estimated at $1,800. The taxes havenot been recorded and will be paid in the next year whenbilled.
On December 31 of the current year, the company completed towingservice for an out-of-state company for $4,000 payable by thecustomer within 30 days. No cash has been collected, and no journalentry has been made for this transaction.
On July 1 of the current year, a three-year insurance premium onequipment in the amount of $900 was paid and debited in full toPrepaid Insurance on that date. Coverage began on July 1 of thecurrent year.
On October 1 of the current year, the company borrowed $13,000from the local bank on a one-year, 12 percent note payable. Theprincipal plus interest is payable at the end of 12 months.
The income before any of the adjustments or income taxes was$30,000. The company’s federal income tax rate is 30 percent.(Hint: Compute adjusted pre-tax income based on(a) through (g) to determine income taxexpense.)
Required:
Indicate whether each transactionrelates to a deferred revenue, deferred expense, accrued revenue,or accrued expense.
Prepare the adjusting entry requiredfor each transaction at December 31 of the current year.

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4.4 Ratings (892 Votes)


	Transactions	Debit	Credit
1	Deferred Expense

	Depreciation Expense	$3,500
	To Acummulated Depreciation		$3,500
	(Being depreciation recorded on van)

2	Deferred Expense

	Supplies Expense	$1,350
	To Supplies		$1,350
	(500+1000-150)
	(Being adjustment made to supplies)

3	Accrued Expense

	Repair Expense	$2,600
	To Accounts Payable		$2,600
	(Being repairs undertaken on truck on account)

4	Accrued Expense

	Property Taxes	$1,800
	To Property taxes payable		$1,800
	(Being property taxes on land payable)

5	Accrued Revenue

	Accounts Receivable	$4,000
	To Service Revenue		$4,000
	(Being towing service provided on account)

6	Deferred Expense

	Insurance Expense	$150
	To Prepaid Insurance		$150
	(900/36)*6
	(Being insurance premium paid)

7	Accrued Expense

	Interest Expense	$390
	To Interest payable		$390
	(1300012%3/12)
	(Being interest on loan payable)

8	Accrued Expense

	Income Tax Expense	$7,263
	To Income tax Payable		$7,263
	(Being Income tax expense recorded)






	Income Before Tax	30000	100%
	Less : Adjustment of Expense/Revenue
	Interest Expense	($390)
	Insurance	($150)
	Service Revenue	$4,000
	Property Taxes	($1,800)
	Repair Expense	($2,600)
	Supplies Expense	($1,350)
	Depreciation	($3,500)

	Income before tax and after adjustments	24210
	Tax @ 30%	7263
		16947

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Transcribed Image Text

In: AccountingMartin Towing Company is at the end of its accounting yearending December 31. The following...Martin Towing Company is at the end of its accounting yearending December 31. The following data that must be considered weredeveloped from the company’s records and related documents:On January 1 of the current year, the company purchased a newhauling van at a cash cost of $28,000. Depreciation estimated at$3,500 for the year has not been recorded for the current year.During the current year, office supplies amounting to $1,000were purchased for cash and debited in full to Supplies. At the endof last year, the count of supplies remaining on hand was $500. Theinventory of supplies counted on hand at the end of the currentyear was $150.On December 31 of the current year, Lanie’s Garage completedrepairs on one of the company’s trucks at a cost of $2,600; theamount is not yet recorded by Martin and by agreement will be paidduring January of next year.On December 31 of the current year, property taxes on land ownedduring the current year were estimated at $1,800. The taxes havenot been recorded and will be paid in the next year whenbilled.On December 31 of the current year, the company completed towingservice for an out-of-state company for $4,000 payable by thecustomer within 30 days. No cash has been collected, and no journalentry has been made for this transaction.On July 1 of the current year, a three-year insurance premium onequipment in the amount of $900 was paid and debited in full toPrepaid Insurance on that date. Coverage began on July 1 of thecurrent year.On October 1 of the current year, the company borrowed $13,000from the local bank on a one-year, 12 percent note payable. Theprincipal plus interest is payable at the end of 12 months.The income before any of the adjustments or income taxes was$30,000. The company’s federal income tax rate is 30 percent.(Hint: Compute adjusted pre-tax income based on(a) through (g) to determine income taxexpense.)Required:Indicate whether each transactionrelates to a deferred revenue, deferred expense, accrued revenue,or accrued expense.Prepare the adjusting entry requiredfor each transaction at December 31 of the current year.