ACCT 601 Extra Practice – Answer
The following independent events for New Age Theatre Ltd. during the year ended November
30, 2018, require a transaction journal entry or an adjusting journal entry, or both. The company
adjusts its accounts annually.
1. On June 1, 2017, the theatre purchased vehicles for $80,000 cash. The vehicles' estimated
useful life is five years and the company uses straight-line depreciation.
(a) Prepare the journal entries to record the original transactions on June 1.
Dr. Vehicles 80,000
Cr. Cash 80,000
(b) Prepare the year-end adjusting entries on November 30.
Depreciation expense/ year = $80,000 ÷ 5 years = 16,000/year
Depreciation expense through June 1 to November 20 = 16,000/ 12 * 6 months=8,000
Dr. Depreciation Expense 8,000
Cr. Accumulated Depreciation—Vehicles 8,000
2. The theatre has eight plays each season. This year's season starts in October 2018 and ends in
May 2019 (one play per month). Season tickets sell for $320/season. On October 1, 400
season tickets were sold for the 2018–2019 season.
(a) Prepare the journal entries to record the original transactions on Oct 1.
Dr. Cash 128,000 (400 × $320)
Cr. Unearned Revenue 128,000
(b) Prepare the year-end adjusting entries on November 30.
Earned revenue = $128,000 × 2/8 plays = 32,000
Dr. Unearned Revenue 32,000
Cr. Ticket Revenue 32,000
3. Supplies on hand amounted to $1,000 at the beginning of the year. On February 16,
additional supplies were purchased for cash at a cost of $2,100. At the end of the year, a
physical count showed that supplies on hand amounted to $500.
(a) Prepare the journal entries to record the original transactions on February 16.
Dr. Supplies 2,100
Cr. Cash 2,100
(b) Prepare the year-end adjusting entries on November 30.
Supplies consumed during the period= beginning balance($1,000)+ additional purchased
($2,100) – on hand at the end of period ($500)=2600
Dr. Supplies Expense 2,600
Cr. Supplies 2,600
4. On June 1, 2018, the theatre borrowed $100,000 from the Bank of Montreal at an interest rate
of 6%. The principal is to be repaid in one year. The interest is payable on the first day of
each following month, and was last paid on November 1.
(a) Prepare the journal entries to record the original transactions
Dr. Cash 100,000
Cr. Bank Loan Payable 100,000
(b) Prepare the year-end adjusting entries on November 30.
Interest for November = $100,000 × 6% × 1/12 months = 500
Note: Interest rate is always expressed in annual terms
Dr. Interest Expense 500
Cr. Interest Payable 500
(c) Record the subsequent cash transactions in December for the interest paid on December
Dr. Interest Payable 500
Cr. Cash 500
5. The New Age Theatre rents a portion of its facilities for $400 a month to a local dance club
that uses the space for rehearsals. On November 2, the dance club's treasurer sent a cheque
for only $40 in advance for the November rent. The dance club's treasurer promised to send a
cheque in December for the balance when she returned from vacation. On December 4, the
theatre received a $360 cheque for the balance owing from November.
(a) Prepare the journal entries to record the original transactions on November 2.
Dr. Cash 40
Cr. Unearned Revenue 40
(b) Prepare the year-end adjusting entries on November 30.
Dr. Unearned Revenue 40
Accounts Receivable 360
Cr. Rent Revenue 400
(c) Record the subsequent cash transactions in December for the cheque received on
December 4.
Dr. Cash 360
Cr. Accounts Receivable 360
6. The total weekly payroll is $7,000, paid every Monday for employee salaries earned during a
seven-day (in this case they work everyday ☹) workweek running from Sunday to Saturday.
Salaries were last paid (and recorded) on Monday, November 26, and will be paid next on
Monday, December 3. November 30 falls on a Friday this year.
(a) Prepare the year-end adjusting entries on November 30.
Accrued Salary (Sunday through Friday) = $7,000 × 6/7 days
Dr. Salaries Expense 6,000
Cr. Salaries Payable 6,000
(b) Record the subsequent cash transactions in December for the payroll paid on December 3
Dr. Salaries Payable (Sunday through Friday) 6,000
Salaries Expense (Saturday) 1,000
Cr. Cash 7,000
7. Upon reviewing its income tax calculations on November 30, the theatre noted that an
additional $1,250 of income tax was owed. This additional amount was paid on December
14.
(a) Prepare the year-end adjusting entries on November 30.
Dr. Income Tax Expense 1,250
Cr. Income Tax Payable 1,250
(b) Record the subsequent cash transactions in December for the income tax paid on
December 14.
Dr. Income Tax Payable 1,250
Cr. Cash 1,250