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16 September, 18:44

Applying the time-period concept

Consider the following situations:

a. Business receives $2,000 on January 1 for 10-month service contract for the period January 1 through October 31.

b. Total salary for all employees is $3,000 per month. Employees are paid on the 1st and 15th of the month.

c. Work performed but not yet billed to customers for the month is $900.

d. The company pays interest on its $10,000, 6% note payable of $50 on the first day of each month.

Requirement

1. Assume the company records adjusting entries monthly. Calculate the amount of each adjustment

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Answers (1)
  1. 16 September, 19:04
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    a) $200

    b) $3,000

    c) $900

    d) $50

    Explanation:

    The amount of each adjustment will be as follows

    a) Business receives $2,000 on January 1 for 10-month service contract for the period January 1 through October 31.

    Thus,

    Monthly amount

    = Total amount : Duration from January 1 through October 31.

    = $2,000 : 10

    = $200

    b) Total salary for all employees is $3,000 per month. Employees are paid on the 1st and 15th of the month.

    since the salary is paid per month it will be remain $3,000 after adjusting

    c) The bill for the customer for the month is $900

    d) The interest payable will remain same as $50 is paid each month
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