Elana's Traveling Veterinary Services, Inc., completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

Elana's Traveling Veterinary Services, Inc., completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

1. On March 1 of the current year, the company borrowed $62,040 at a 10 percent interest rate to be repaid in five years.
2. On the last day of the current year, the company received a $530 utility bill for utilities used in December. The bill will be paid in January of next year.

Required:

1. What is the annual reporting period for this company?

 

Explanation:

1.

The annual reporting period for this company is January 1 through December 31.

2.

Both transactions (a) and (b) are accruals because expenses have been incurred but no cash has yet been paid.

(a)

1.  Interest expense is incurred

2.  Cash will be paid in the next period to the bank for using the borrowed funds in the current period – an accrued expense needs to be recorded.

3.  Amount:  $62,040 principal  × .10 rate × 10 months/12 months = $5,170

(b)

1.  Utilities expense is incurred.

2.  Cash will be paid in the future – an accrued expense needs to be recorded.

3.  Amount:  $530 given