F2 - Adjusting Journal Entries

Question 1

Sampson Manufacturing Company (SMC) has an empty warehouse that it rents out to a local beer distributor for a monthly rental fee of $6,000. Terms of the rental agreement include a 10-day payment grace period and an additional $200 monthly utility expense, necessary to maintain the beer distributor’s products at the proper temperature, paid by SMC. Assuming that SMC records journal entries on a monthly basis, and that it receives the December monthly rent payment on January 9th, what is the adjusting journal entry (if any) made by SMC on December 31 (with December’s $200 utility payment made on January 2)?

Answer 1

SMC would record an adjusting journal entry to recognize** rent revenue** earned but not received from the beer distributor until the month after. Additionally, SMC must recognize the utility expense associated with the December rent revenue (matching principle) even though the payment for the utility expense is not made until the following month (January 2).

JE:
Debit
Rent Receivable
Utilities Exp
Credit
Rent Rev
Utilities payable

Question 2

On January 1, Metal Industries Inc. purchased $15,000 of cleaning products (supplies) for industrial use, expensing the entire amount on that day. At year-end, the janitorial supervisor noticed that $1,800 of the cleaning products were not used. Based on the above, what adjusting journal entry would be made by the company on December 31 at year-end?

Answer 2

The scenario facts indicate that the company initially thought that the entire $15,000 of cleaning products purchased on January 1 would be used during the year, resulting in the entire $15,000 amount being expensed (debit), with a credit to cash. Because $1,800 in cleaning products purchased were not used, the company must reverse that expense amount and recognize an asset as follows:

JE
Debit Cleaning Supplies (ASSET)
Credit Supplies expense