
Concept explainers
Accounting rules regarding journal entries:
- Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
- Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.
Income Statement: It is a financial statement which show the
To prepare: Adjusting entry, financial statement and explain impact of adjusting entry on net income

Answer to Problem 1GLP
Solution:
Prepare adjusting entries:
a.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Insurance Expense | 100 | ||
Prepaid Insurance | 100 | |||
(Being insurance coverage worth $100has expired) |
Explanation of Solution
- Insurance expense is an expense. Since, expense reduces equity, debit insurance expense account.
- Prepaid Insurance is an asset. Since, some of the insurance is used up, it reduces asset. Hence, credit prepaid insurance account.
b.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Supplies Expense | 1,050 | ||
Supplies | 1,050 | |||
(Being $1,050 worth of computer Supplies got exhausted) |
- Supplies expense is an expense. Since, expense reduces equity, debit supplies expense account.
- Supplies are an asset. Since, some of asset used up, it reduces asset. Hence, credit supply account.
c.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | 300 | |||
| 300 | |||
(Being depreciation is recorded) |
- Depreciation Expense is an expense. Since, expense reduces equity, debit depreciation expense- equipment account.
- Accumulated Depreciation- equipment is a Contra asset. Since, it has a normal credit balance. Hence, credit accumulated depreciation-equipment account.
d.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Unearned consulting revenue | 250 | ||
Consulting revenue | 250 | |||
(Being revenue is earned) |
- Unearned consulting revenue is a liability. Since, revenue is earned, it decreases liability. Hence, debit unearned consulting revenue account.
- Consulting revenue is an income. Since, obligation is fulfilled, it increases income. Hence, credit consulting revenue account.
e.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Salary Expense | 210 | ||
Salary Payable | 210 | |||
(Being salaries worth $600 due to be paid) |
- Salary expense is an expense. Since, expense reduces equity, debit salary expense account.
- Salary Payable is a liability. Since, expense has occurred but not paid yet, it increases liability. Hence, credit salary payable account.
f.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | 1,800 | |||
Consulting revenue | 1,800 | |||
(Being revenue is earned) |
- Accounts receivable is an asset. Since, revenue is earned but not received yet, it increase asset. Hence, debit accounts receivable account.
- Consulting revenue is an income. Since, obligation is fulfilled, it increases income. Hence, credit consulting revenue account.
Prepare income statement.
F.F. Company | ||
Income Statement | ||
For the year ended December 31, 2017 | ||
Particulars | Amount($) | Amount($) |
Revenue: | ||
Service Revenue | 7,850 | |
Rental revenue | 300 | |
Total Revenue | 8,150 | |
Expenses: | ||
Depreciation Expense- equipment | 300 | |
Salaries Expenses | 1,610 | |
Insurance Expense | 100 | |
Rent Expenses | 1,000 | |
Supply Expense | 1,050 | |
Utilities expense | 305 | 4,365 |
Net income | 3,785 |
Net income of B.S. Company is $3,485.
Prepare Retained Earnings Statement.
F.F. Company | ||
Retained Earnings Statement | ||
For the year ended December 31, 2017 | ||
Particulars | Amount($) | |
Opening balance | 0 | |
Net income | 3,785 | |
Dividends | (200) | |
Retained earnings | 3,585 |
Therefore, Retained earnings of B.S. Company are $3,285.
Prepare Balance sheet.
F.F. Company | ||
Balance sheet | ||
As on December 31, 2017 | ||
Particulars | Amount($) | |
Assets | ||
Cash | 4,275 | |
Accounts Receivable | 1,800 | |
Supplies | 8,670 | |
Prepaid Insurance | 2,300 | |
Equipment | 26,000 | |
Accumulated Depreciation-equipment | (300) | 25,700 |
Total Assets | 42,745 | |
Liabilities and | ||
Liabilities | ||
Accounts payable | 6,200 | |
Salaries Payable | 210 | |
Unearned consulting revenue | 2,750 | |
Stockholder’s Equity | ||
Common Stock | 30,000 | |
Retained earnings | 3,585 | |
Total stockholders’ equity | 33,585 | |
Total Liabilities and Stockholder’s equity | 42,745 |
Balance sheet of F.F. Company as on 31 December 2017 stood for $42,745.
Effects of adjusting entries on net income:
a.
Insurance expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
b.
Supplies expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
c.
Depreciation expense-equipment is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
d.
Consulting fees earned is an income. Since, it is credited; it increases the income of the firm.
e.
Salaries expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
f.
Consulting fees earned is an income. Since, it is credited; it increases the income of the firm.
Want to see more full solutions like this?
Chapter 3 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
- Patrick Lewis Manufacturing Ltd. has been using an overhead rate of Rs.8.20 per machine hour. During the year, overheads of Rs. 310,000 were incurred, and 50,000 machine hours were worked. Therefore, overheads were: A. Under-applied by Rs. 100,000 B. Over-applied by Rs. 70,400 C. Under-applied by Rs. 70,400. Over-applied by Rs. 100,000arrow_forwardAt the beginning of a year, a manufacturing company predicts total direct materials costs of $920,000 and total overhead costs of $1,100,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?arrow_forwardGeneral accounting questionarrow_forward
- At October 1, 2022, Kahlo Industries reported a cash balance of $55,000. During the month, Kahlo collected $18,000 in cash and made disbursements of $28,000. What is the cash balance at October 31, 2022? A. $30,000 credit B. $45,000 credit C. $65,000 debit D. $45,000 debitarrow_forwardHi experts please provide answer this financial accounting questionarrow_forwardWhat is Greenway Inc.'s annual cash flow associated with the new project?arrow_forward
- complete the below in same table - show journal entries in the table and ensure that they matches - FlagStaff Ltd has a defined benefit pension plan for its employees. The company is considering introducing a defined benefit contribution plan, which will be available to all incoming staff. Although the defined benefit plan is now closed to new staff, the fund is active for all employees who have tenure with the company. In 2020, the following actuarial report was received for the defined benefit plan: 2020/$ Present value of the defined benefit obligation 31 December 2019 18 000 000 Past Service Cost 4 000 000 Net interest ? Current service cost 600 000 Benefits paid 2 000 000 Actuarial gain/loss on DBO ? Present value of the defined benefit obligation 31 December 2020 21 000 000 Fair value of plan assets at 31 December 2019 17 000 000 Return on plan assets ? Contributions paid to the plan during the year 1 500 000 Benefits paid by the plan during the year 2 000…arrow_forwardFill in the missing information from the balance sheet. Solace Corporation Balance Sheet As of December 31, 2016 (Amounts in thousands) • • Cash: $4,200 Other assets: $3,800 • Liabilities: $4,500 • Equity: To be determined • Total assets: To be determined Total liabilities and equity: To be determined What is the value of equity?arrow_forwardFinancial accountingarrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage Learning
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning



