During 2012, Walnut Company completed the following two transactions. The annual accounting period ends December 31.
a. Paid and recorded wages of $130,000 during 2012; however, at the end of December 2012, three days’ wages are unpaid and unrecorded because the weekly payroll will not be paid until January 6, 2013. Wages for the three days are $4,000.
b. Collected rent revenue on December 10, 2012, of $2,400 for office space that Walnut rented to another party. The rent collected was for 30 days from December 10, 2012, to January 10, 2013, and was credited in full to Rent Revenue.
Required:
1. Give
(a) The adjusting entry required on December 31, 2012, and
(b) The January 6, 2013, journal entry for payment of any unpaid wages from December 2012.
2. Give
(a) The journal entry for the collection of rent on December 10, 2012, and
(b) The adjusting entry on December 31, 2012.
3. Show how any liabilities related to these transactions should be reported on the company’s balance sheet at December 31, 2012.
4. Explain why the accrual method of accounting provides more relevant information to financial analysts than the cash method.