Question

Prepare all required summary journal entries complete with explanations for each of the 20X5, 20X6, and20X7 fiscal years. (Round the percentage of completion to one significant decimal place —for example, 16.4%—to determine the amount of revenue to be recognized in each year.)

Extracts from Bonsai Products Corp.’s(BPC) unadjusted trial balance for its yearended December31, 20X7,appear below:
Bonsai Products Corp.
Unadjusted trial balance (extracts)
As at December31, 20X7

Account	Debit	Credit
Prepaid expenses	3,500
Note receivable	69,302
Office building	400,000
Accumulated depreciation - office building		215,625
Computer equipment	16,400
Accumulated depreciation - computer equipment		7,900

BPC reports its financial results in accordance with IFRS. It uses a perpetual system to account for its inventory. The company’s policy is that it only prepares accruals and adjusting entries at year end.

Pertinent information follows:
•On June 1, 20X7,BPC paid $2,400 for an insurance policy that provides for fire damage from June 1, 20X7, to May31, 20X8. The insurance premium was debited to prepaid expenses. The pre-existing balance in this account was for another annual insurance policy that expired on May31, 20X7.

•BPC depreciates its building on a straight-line basis over 20 years. The estimated residual value of the building at the end of its useful life is $25,000.

•BPC depreciates its computer systems using the declining balance method at a rate of 40% per year. There were no additions or disposals of computers during the year.

•On October 1, BPC sold a 24-month service agreement for $24,000 covering the period from December1, 20X7, to November30, 20X9, crediting unearned revenue. BPC’s policy Intermediate Financial Reporting 1Project 18/ 9is to recognize revenue equally over the life of the service agreement. Related expenses have already been recognized in the company’s accounts.

•The note receivable was taken on February1, 20X7. It is repayable at $20,000 per annum, first due February1, 20X8. The payment includes interest at 6% per annum,which is the market rate of interest for loans of this nature.

•BPC’s review of its shipping records indicates that inventory costing $700 was sold FOB destination on account for $1,100 on December28, 20X7,but was not delivered until January8, 20X8. BPC recorded the sale on December 28.

Required: Prepare all required adjusting journal entries for the year ended December31, 20X7.

Answer 1