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In each of the following transactions (a) through (c) for Romney's Marketing Company, use the three-step process to record the adjusting entry at the end of the current year. The process includes (1) determining if revenue was earned or an expense was incurred, (2) determining whether cash was received or paid in the past or will be received or paid in the future, and (3) computing the amount of the adjustment.

a. Estimated electricity usage at $210 for December; to be paid in January of next year.
b. On September 1 of the current year, loaned $5,700 to an officer who will repay the loan principal and interest in one year at an annual interest rate of 14 percent.
c. Owed wages to 18 employees who worked three days at $180 each per day at the end of the current year. The company will pay employees at the end of the first week of next year.

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Answer:

Romney's Marketing Company

Adjusting Journal Entries:

a. Debit Utilities (Electric) Expense $210

   Credit Utilities Payable $210

To record December electricity expense.

b. Debit Interest Receivable $266

   Credit Interest Revenue $266

To record Interest revenue for 4 months.

c. Debit Wages Expense $9,720

   Credit Wages Payable $9,720

To record unpaid wages (18 * 3 * $180)

Explanation:

An expense was incurred for December electricity and this must be accrued in December since $210 will be paid in January.

Interest revenue was earned for September to December and $266 will be received in the future.  The interest due is computed as $266 = ($5,700 * 14% * 4/12).

Wages expense was incurred after receiving the services of 18 workers who worked for 3 days at $180 each per day.  The expense will be paid in January.

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