Question 7

Extracts from Bonsai Products Corp.’s (BPC) unadjusted trial balance for its year ended December 31, 20X7, appear below:

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 May 31, 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 May 31, 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 December 1, 20X7, to November 30, 20X9, crediting unearned revenue. BPC’s policy is 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 February 1, 20X7. It is repayable at $20,000 per annum, first due February 1, 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 December 28, 20X7, but was not delivered until January 8, 20X8. BPC recorded the sale on December 28.

Required:

Prepare all required adjusting journal entries for the year ended December 31, 20X7

Prep-IF1-ASN02