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1.
Record the adjusting entry for deferred service revenue.
1.
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Answer to Problem 12E
Adjusting entry for unearned service revenue is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2021 | Deferred Revenue | 2,000 | ||
Service Revenue | 2,000 | |||
(To record the adjustment of revenue account.) |
Table (1)
Explanation of Solution
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.
Working Note:
Calculate the service revenue.
Following is the rules of debit and credit of above transaction:
- Deferred Revenue is a liability account. The liability is decreased and therefore, debit deferred revenue account with $2,000.
- Service Revenue is a
stockholders’ equity account. The service revenue increases the stockholder’s equity. Therefore, credit Service Revenue account with $2,000.
2.
Record the adjusting entry for prepaid insurance.
2.
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Answer to Problem 12E
Adjusting entry for prepaid Insurance is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2021 | Insurance expense | 6,600 | ||
Prepaid Insurance | 6,600 | |||
(To record the insurance expense incurred at the end of the accounting year) |
Table (2)
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.
Following is the rules of debit and credit of above transaction:
- Insurance expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
- Prepaid insurance is an asset account. There is a decrease in assets, therefore it is credited.
3.
Record the adjusting entry for salaries expense incurred at the end of the accounting year.
3.
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Answer to Problem 12E
Adjusting entry for salaries expense is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2021 | Salaries expense | 3,000 | ||
Salaries payable | 3,000 | |||
(To record the adjustment made for salaries payable.) |
Table (3)
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.
Following is the rules of debit and credit of above transaction:
- Salaries expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
- Salaries payable is a liability account. There is a decrease in liability, therefore it is credited.
4.
Record the adjusting entry for interest expense incurred at the end of the accounting year.
4.
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Answer to Problem 12E
Adjusting entry for interest expense is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2021 | Interest Expense | 250 | ||
Interest Payable | 250 | |||
(To record the adjustment made for interest payable.) |
Table (4)
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.
Working Note:
Calculate the interest expense.
Following is the rules of debit and credit of above transaction:
- Interest expense decreases the value of stockholders’ equity. Hence, it is debited.
- Interest payable increases the liability account. Therefore, credit interest payable account.
5.
Record the adjusting entry for supplies expense.
5.
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Answer to Problem 12E
Adjusting entry for supplies expense is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
December 31, 2021 | Supplies expense | 3,900 | ||
Supplies | 3,900 | |||
(To record the supplies expense incurred at the end of the accounting year) |
Table (5)
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.
Working Note:
Calculate the supplies expense.
Following is the rules of debit and credit of above transaction:
- Supplies expense is an expense, and it decreases the value of stockholder’s equity. Therefore, it is debited.
- Supplies are the asset account. There is a decrease in assets, therefore it is credited.
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Chapter 3 Solutions
Financial Accounting Connect Access Card
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