E4-19 On December 31, the adjusted trial balance of Oslo Employment Agency shows the following
selected data.
Accounts Receivable $24,000 Commission Revenue $92,000
Interest Expense 7,800 Interest Payable 1,500
Analysis shows that adjusting entries were made to (1) accrue $4,500 of commission revenue and
(2) accrue $1,500 interest expense.
Instructions
(a) Prepare the closing entries for the temporary accounts at December 31.
(b) Prepare the reversing entries on January 1.
(c) Post the entries in (a) and (b). Rule and balance the accounts. (Use T accounts.)
(d) Prepare the entries to record (1) the collection of the accrued commissions on January 10
and (2) the payment of all interest due ($2,500) on January 15.
(e) Post the entries in (d) to the temporary accounts
To answer this question, we will need to go through the steps of preparing closing entries, reversing entries, posting entries, and preparing new entries. Here's how you can go about each step:
(a) Prepare the closing entries for the temporary accounts at December 31:
1. Determine the temporary accounts that need to be closed. In this case, the temporary accounts are "Commission Revenue" and "Interest Expense".
2. Write the closing entries. For Commission Revenue, you need to debit the account for the amount of commission revenue earned ($92,000), and credit the Income Summary account for the same amount. For Interest Expense, you need to debit the Income Summary account for the amount of interest expense accrued ($7,800), and credit the Interest Expense account for the same amount.
The closing entries would be as follows:
Commission Revenue 92,000
Income Summary 92,000
Income Summary 7,800
Interest Expense 7,800
(b) Prepare the reversing entries on January 1:
1. Determine the accounts that were debited and credited in the closing entries above. In this case, the accounts are "Commission Revenue", "Income Summary", "Income Summary", and "Interest Expense".
2. Write the reversing entries. For Commission Revenue, you need to debit the Income Summary account for the amount of commission revenue earned ($92,000), and credit the Commission Revenue account for the same amount. For Interest Expense, you need to debit the Interest Expense account for the amount of interest expense accrued ($7,800), and credit the Income Summary account for the same amount.
The reversing entries would be as follows:
Income Summary 92,000
Commission Revenue 92,000
Interest Expense 7,800
Income Summary 7,800
(c) Post the entries in (a) and (b). Rule and balance the accounts. (Use T accounts.):
To post the entries, you would need to create T accounts for the relevant accounts: Accounts Receivable, Commission Revenue, Interest Expense, and Interest Payable. Record the debits and credits from the entries in (a) and (b) to their respective accounts. Follow the rules of debits and credits (for example, debiting assets and expenses, and crediting liabilities and revenues) and balance the accounts accordingly.
(d) Prepare the entries to record (1) the collection of the accrued commissions on January 10 and (2) the payment of all interest due ($2,500) on January 15:
1. For the collection of accrued commissions on January 10, you would need to debit the Accounts Receivable account for $24,000 (the amount of commission receivable), credit the Commission Revenue account for $4,500 (the amount already earned), and credit the Accounts Receivable account for $19,500 (the remaining balance).
The entry would be as follows:
Accounts Receivable 24,000
Commission Revenue 4,500
Accounts Receivable 19,500
2. For the payment of all interest due on January 15, you would need to debit the Interest Payable account for $1,500 (the amount of interest payable), debit the Interest Expense account for $1,000 (the amount of interest accrued but not yet paid), and credit the Cash account for $2,500 (the payment made).
The entry would be as follows:
Interest Payable 1,500
Interest Expense 1,000
Cash 2,500
(e) Post the entries in (d) to the temporary accounts:
Similarly, create T accounts for the relevant temporary accounts (Commission Revenue, Interest Expense, Interest Payable). Post the debits and credits from the entries in (d) to their respective accounts. Remember to follow the rules of debits and credits and balance the accounts accordingly.
By following these steps, you should be able to prepare the necessary entries and post them to the accounts mentioned.