The following independent items for Last Planet Theatre during the year ended December 31, 2014, may require a transaction journal entry, an adjusting entry, or both. The company records all prepaid costs as assets and all unearned revenues as liabilities and adjusts accounts annually.
1. Supplies on hand amounted to $535 on December 31, 2013. On February 10, 2014, additional supplies were purchased for $1,085 cash. On December 31, 2014, a physical count showed that supplies on hand amounted to $370.
2. Purchased equipment on September 2, 2014, for $23,500 cash. The equipment was estimated to have a useful life of 10 years.
3. Last Planet Theatre puts on seven plays each season. Season tickets sell for $200 each and 250 sold in October for the upcoming 2014-2015 season, which begins in November 2014 and ends in May 2015 (one play per month). Last Planet Theatre credited Unearned Revenue for the full amount received.
4. Every Tuesday, the total payroll is $4,200 for wages earned during the previous six-day workweek (Tuesday to Sunday). Wages were last paid on Tuesday, December 30. This year, December 31 falls on a Wednesday.
5. Last Planet Theatre rents the theatre to a local children's choir, which uses the space for rehearsals twice a week at a rate of $500 per month. The choir was short of cash at the beginning of December and sent Last Planet Theatre a cheque for $350 on December 5, and a promise to pay the balance in January. On January 7, 2015, Last Planet Theatre received a cheque for the balance owing from December plus all of January's rent.
6. On June 1, 2014, the theatre borrowed $25,100 from its bank at an annual interest rate of 4.25%. The principal and interest are to be repaid on March 1, 2015.
7. Upon reviewing its accounting records on December 31, 2014, the theatre noted that the telephone bill for the month of December had not yet been received. A call to the phone company determined that the December telephone bill was $325. The bill was paid on January 10, 2015.
Instructions
(a) Prepare the journal entries to record the 2014 transactions for items 1 though 6.
(b) Prepare the year-end adjusting entry for items 1 through 7.
(c) Prepare the journal entries to record:
1. The payment of wages on Tuesday, January 6 (item 4).
2. The receipt of the cheque from the children's choir on January 7 (item 5)
3. The payment of the telephone bill on January 10 (item 7)
4. The payment of the note and interest on March 1, 2015 (item 6)
TAKING IT FURTHER There are three basic reasons why an unadjusted trial balance may not contain complete or up-to-date data. List these reasons and provide examples of each one using items 1 to 7 to illustrate your explanation.